At the moment, USDCAD is trading near 1.42250, slightly pulling back from a 1.5-year peak reached earlier this week. The Canadian dollar has several fundamental factors at its side, so the pair is likely to keep moderately declining in the coming month.
The dollar has recently lost its most reliable pillar of support due to a shift in market expectations regarding the Federal Reserve’s (Fed) future monetary trajectory. The probability of an October rate hike—a move that seemed inevitable just a few days ago—has fallen sharply after a weak employment report and subdued inflation readings from the US. Under these circumstances, the American regulator could easily put policy tightening on hold in anticipation of fresh macroeconomic data. This would cap the greenback’s upside potential and provide additional evidence for a looming correction in the pair.
However, the key factor to consider is the significant rate gap between the Fed and the Bank of Canada (BoC). The latter holds borrowing costs at 2.25%, while its American counterpart keeps them much higher. Such a divergence continues to favor the USD, preventing a steep decline in the pair and limiting the CAD’s strengthening. Therefore, no sharp movements are expected.
The technical setup points to a downward scenario. A prolonged rally pushed USDCAD to 1.43000, where resistance had previously formed. Meanwhile, the Relative Strength Index (RSI) has just entered overbought territory, signaling that the upward move is overextended and increasing the likelihood of a trend reversal. If a correction is confirmed, the primary downside target will be the 1.35500 mark—a level that previously acted as support.
The final recommendation:
— Sell USDCAD at the current price of 1.42250, aiming for 1.35500 within one month.
— Place Stop Loss at 1.45000 for better risk management if the market plays against us.
This content is for informational purposes only and is not intended to be investing advice.
