USDCAD is now dancing around 1.39200, hinting at a further rally. What is helping the dollar keep the lead? Reinforcing expectations of the Federal Reserve’s (Fed) monetary tightening. Chairman Kevin Warsh’s recent hawkish speech at the Jackson Hole Symposium poured fuel on the fire, nearly doubling market projections of a September rate hike. Inflation risks were another trigger. Renewed hostilities between the United States and Iran have pushed crude costs above $95 per barrel, intensifying concerns over a fresh spike in consumer prices. The dollar index (DXY) and 10-year government bonds tend to thrive in such an environment. Yields on the latter have recently climbed to multi-year peaks.
Meanwhile, Canada’s fundamental picture remains mixed. The country’s GDP rose by 3.3% year-over-year in the second quarter (Q2), marking the best reading since 2023 and exceeding the central bank’s forecast of 2.5%. Exports climbed by 3.6%, domestic consumption gained 1%, and business investments grew by 2.3%. These figures underscore the resilience of the national economy and help limit pressure on the loonie. However, this does not appear to be enough. The positive effect is insufficient to prompt the Bank of Canada (BoC) into action. Borrowing costs are expected to hold steady at 2.25% at the regulator’s September 2 meeting. The Fed, by contrast, is highly likely to raise rates on September 16.
Now, let’s turn to the technical setup. Last week, USDCAD slipped to the 1.37300 level, which served as strong support. Buyers emerged near this threshold, preventing the pair’s further decline and triggering an imminent recovery. Quotes now look poised to continue their upside, with the next target at the 1.42500 resistance.
The final recommendation is to buy USDCAD at the current price of 1.39200, aiming for 1.42500 within a month. To mitigate the risk of adverse market movements, place a Stop Loss order at 1.37300.
This content is for informational purposes only and is not intended to be investing advice.
