Canadian Dollar Outlook: USD/CAD Maintains Bullish Bias Ahead of Central Bank Decisions

Over the past four trading sessions, the USD/CAD pair has gained more than 1.3% in favor of the US dollar, and for now, the bullish bias remains intact in the short term. Buying pressure has been consistent lately, driven by growing expectations surrounding the upcoming interest rate decisions from both the Bank of Canada and the Federal Reserve. If the market perceives a more hawkish stance from the Fed compared to a more cautious tone from the Bank of Canada, bullish momentum in the pair could strengthen further.

Central Bank Day Arrives

On July 30, 2025, both the Bank of Canada and the Federal Reserve will release their rate decisions, making this one of the most impactful sessions for USD/CAD.

The market expects the Bank of Canada to hold rates at 2.75%, signaling a neutral stance for now. A similar outcome is projected for the Fed, with the CME Group assigning a 96.9% probability that the rate will remain at 4.5%.

Source: CME Group

Although both central banks are expected to hold rates steady, the interest rate differential remains significant. While the US keeps its benchmark rate high, Canada's remains considerably lower, and there are no clear signs that the Fed is planning an aggressive rate-cutting cycle anytime soon. This gap continues to favor the US dollar, as higher rates in the US may keep attracting capital inflows into its economy.

Source: TradingEconomics

If the US maintains a more attractive rate environment, demand for dollar-denominated assets may remain strong, leaving little room for the Canadian dollar to gain ground in the short term. Unless tomorrow’s announcements include meaningful surprises that narrow this interest rate gap, buying pressure on USD/CAD may strengthen further in upcoming sessions.

 

What About the Trade War?

Following recent tariff threats from the US toward Canada, the possibility of a 35% tariff remains on the table, with a deadline set for August 1. Despite ongoing negotiations, Canada has yet to secure a favorable agreement.

This scenario is particularly sensitive for the Canadian dollar. If a resolution is not reached before the deadline, the new tariffs may begin to affect Canadian exports, potentially damaging confidence in the domestic economy. This could lead to renewed weakness in the CAD.

Additionally, deals already struck by the US with other partners show that minimum tariffs of 15% are being enforced, even in supposedly “successful” agreements. Therefore, even if Canada manages to close a deal, it’s not guaranteed to avoid trade restrictions, which could weigh on economic growth and increase buying pressure on USD/CAD in the medium term.

 

USD/CAD Technical Outlook

Source: StoneX, Tradingview

• Sideways Range Holds: The pair remains within a well-defined technical range, bounded by resistance at 1.37765 and support at 1.35435. Recent bullish momentum has pushed the price toward the upper edge of the channel, but resistance is holding firm for now. Unless this barrier is broken, price action is likely to remain constrained within the current consolidation pattern. A clear breakout would likely shift the dynamic and open the door to a more sustained uptrend.
• RSI: The Relative Strength Index continues to hover above the neutral 50 level, indicating that bullish momentum remains dominant. If this trend continues, it may further reinforce the upside bias in the short term, especially if the indicator pushes toward overbought territory.
• MACD: The MACD histogram remains above the zero line, supporting the view that market momentum favors buyers. Should the histogram continue to expand, it could signal a breakout from the range and confirm a stronger bullish trend in the near term.

 

Key Levels:

• 1.35435 – Key Support: This level marks the lowest price of the year and serves as the primary technical floor within the channel. A break below it would open the door to a new bearish bias, potentially triggering a more defined downtrend in the coming weeks.
• 1.37765 – Nearby Resistance: Aligned with the 23.6% Fibonacci retracement, this level marks the top of the current range. A clear break above this zone would likely confirm a stronger bullish bias, allowing the pair to resume a more directional upward move.
• 1.39296 – Distant Resistance: This level corresponds to the 38.2% Fibonacci retracement and is the next major target if the pair breaks out of the current range. A move to this level would confirm the start of a new bullish trend in the short term.

 

Written by Julian Pineda, CFA – Market Analyst

Follow him on: @julianpineda25