USDCAD is now flying around six-month peaks and looks poised to climb higher, supported by several fundamental factors.
The Canadian dollar remains under pressure from the sharp drop in crude prices, which have recently lost about 10% and settled at $84 per barrel. As one of the world’s largest energy exporters, the northern country tends to see its trading conditions worsen and the loonie’s investment appeal diminish when oil costs fall. And this is not the only challenge Canada is facing right now. There is still a tangible threat of 50% US tariffs on a wide range of goods. Trade uncertainty has already led to a noticeable boost in speculative short positioning on the Canadian dollar. At the same time, macroeconomic data sends even more bearish signals. Retail sales rose just 1% in May, with the preliminary estimate for June pointing to a further 0.4% increase. Meanwhile, inflation eased from 3.2% to 2.8%. These figures reduce the case for tighter policy from the Bank of Canada (BoC) and preserve the US dollar’s interest rate advantage.
The key event for the pair will be the Federal Reserve’s monetary decision on July 29. The Fed’s borrowing costs stand at 3.75%, compared to the BoC’s 2.25%. While the consensus forecast is for the US central bank to hold steady, markets are pricing in a roughly one‑in‑three chance of a 25‑basis‑point hike. Hawkish rhetoric from the regulator, a renewed emphasis on inflation risks, or signals of a rate increase at the next meeting could support American bond yields and push USDCAD higher. On the upside, the pair could target the 1.42500 level, which corresponds to the six‑month local peaks.
The final recommendation:
— Buy USDCAD at the current price of 1.40800, aiming for 1.42500 within a week.
— Place a Stop Loss order at 1.40000 to manage risks if the market moves against us.
This content is for informational purposes only and is not intended to be investing advice.
