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Canadian Dollar Could Be Pressured by Policy Expectations and Trade Uncertainty
Central Bank
Forex
Summary:
The USDCAD extended its gains for the fourth consecutive day on Wednesday, surpassing 1.3790 in early European trading and reaching a one-and-a-half-week high. Market consensus anticipates the Bank of Canada to hold the overnight rate steady at 2.75% during the upcoming meeting, reflecting a cautious stance on the current economic conditions.
Sell
TradingUSDCAD
EXP
1.38088
Entry Price
1.34010
TP
1.39700
SL
1.38574 +0.00299 +0.22%
0
Point
Flat
1.34010
TP
CLOSING
1.38088
Entry Price
1.39700
SL
Fundamentals
The USDCAD extended its gains on Wednesday, marking a fourth consecutive day of increases, and briefly surpassed 1.3790 in early European trading, reaching a high not seen in approximately one and a half weeks, driven by sustained buying pressure on the U.S. dollar.
Market consensus anticipates that the Bank of Canada (BOC) will hold the overnight rate steady at 2.75% during today's meeting. This would represent the third pause in its easing cycle, reflecting a more cautious approach to policy-making. The unemployment rate dipped to 6.9% in June, indicating a slight improvement in the labor market, which allows the BOC to maintain its current stance.
Despite this, underlying inflationary pressures persist, with the CPI remaining stable around 2.6%, well above the central bank's comfort zone. Given that the current interest rate level is already in a neutral territory, the BOC is likely to maintain a wait-and-see approach, particularly amid ongoing global trade uncertainties and the unresolved status of U.S.-Canada negotiations.
A Reuters survey revealed that roughly two-thirds of economists predict the BOC will implement a 15-basis-point rate cut in September, followed by another cut before year-end. If these forecasts materialize, the policy rate would fall to 2.25%, aligning with weak demand and potential deflationary risks. In this context, market bets on further easing could intensify, increasing the pressure on the Canadian dollar.
Technical Analysis
From a technical perspective, the USDCAD breached its 55-day SMA this week, with the daily MACD exhibiting a bullish divergence, supporting the view of a corrective rebound from the 1.3538 low.
The near-term target may be 1.4017 (corresponding to a 38.2% retracement of the 1.4791 to 1.3538 decline), although this level will likely present strong resistance. Failure to decisively break above this level could limit the pair's upside potential.
It is important to note that the current USDCAD movement is still part of a corrective rebound following the downtrend from the multi-year high established in February. While the head and shoulders top pattern is not yet complete, the overall structure leans bearish. Therefore, even if the short-term rebound continues, a strategy of going short at the highs is recommended if resistance is encountered, awaiting a price re-entry into the downward trend.
Trading Recommendations
Trading Direction: Sell
Entry Price: 1.3850
Target Price: 1.3401
Stop Loss: 1.3970
Valid Until: August 14, 2025 23:55:00
Support: 1.3683, 1.3631, 1.3577
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