USDCAD is flying near 1.38500, supported largely by stubbornly high inflation in the United States. July’s Personal Consumption Expenditures (PCE) index jumped to 3.7% year-on-year. The core reading remained at 3.3%. Such an outcome has reinforced market expectations of the Federal Reserve’s (Fed) hawkish stance. There is now roughly a 35% probability of a rate hike in September and approximately a 75% chance of monetary tightening by the end of 2026. This shift in forecasts has helped the dollar index (DXY) finish the week in positive territory, hovering near 7-day highs.
In the meantime, the loonie faces its own challenges: a sudden escalation in trade relations between the US and Canada. Following a breakdown in negotiations, Washington introduced 50% tariffs on a range of its neighbor’s goods. Ottawa responded swiftly, announcing retaliatory measures set to take effect on September 8. This negative turn in the talks heightens the risk of an economic slowdown in Canada—hardly a favorable backdrop for the national currency. That said, the fundamental picture is not entirely gloomy. The current account balance for the second quarter (Q2) unexpectedly posted a surplus for the first time in four years. The loonie is also underpinned by Brent crude’s rebound to the $90 zone. These two factors have helped the Canadian dollar stay afloat and partially recover its losses.
On the technical side, the pair slipped to 1.37300 last week. This level proved to be solid support. Prices are now attempting to climb higher, aiming to test the 1.42500 resistance.
The overall recommendation is to buy USDCAD at the current price of 1.38500, targeting 1.42500 within one month. For better risk management, place a Stop Loss order at 1.37300.
This content is for informational purposes only and is not intended to be investing advice.
