USD/CAD Forecast: Eyes on $1.3615 Resistance Amid FED Rate Cut Signals

The USD/CAD pair struggled to maintain its recovery during the European trading session, dropping to around 1.3584. The decline was largely driven by a weakening US Dollar (USD), which faced downward pressure due to increasing expectations of an aggressive Federal Reserve rate cut.

Meanwhile, the Canadian Dollar (CAD) experienced its own pressures, as the Bank of Canada (BoC) signaled potential interest rate reductions. Remarks from BoC Governor Tiff Macklem, hinting at the possibility of accelerating rate cuts, further added to the CAD’s weakness.

Impact of Fed Rate Cut Expectations and Treasury Yields on USD/CAD

The broad-based US Dollar is facing challenges ahead of the Federal Reserve’s key rate decision this week. Growing speculation of a 50 basis point rate cut at the Fed’s meeting on Wednesday has pressured the USD, weighing on the USD/CAD pair.

Market participants now assign a 62% probability to a 50 bps cut, up from 50% a day earlier, as per the CME FedWatch Tool.

A smaller 25 bps cut has a 38% chance, but the momentum is clearly leaning toward a more aggressive easing stance.

Despite this, US Treasury yields remain robust, providing some support for the dollar. Rising yields could help limit the downside for USD/CAD, even if the Fed proceeds with a larger-than-expected rate cut.

Traders will also keep a close eye on Canada’s Consumer Price Index (CPI) data for August, set to be released later today. The CPI report will be a crucial data point, potentially influencing future Fed and BoC decisions.

• CME FedWatch Tool shows a 62% chance of a 50 bps cut.
• US Treasury yields provide some support for the dollar.
• Canada’s CPI data is expected to influence BoC’s next moves.

Canadian Dollar Under Pressure Amid Rate Cut Expectations

The Canadian Dollar is grappling with downside risks driven by growing expectations of rate cuts from the Bank of Canada. In recent comments, BoC Governor Tiff Macklem hinted that the central bank may need to speed up rate cuts if economic conditions worsen.

He even suggested the possibility of a 50 basis point reduction in the coming months, which has cast doubts on the CAD’s strength in the short term.

Macklem’s statements, reported by the Financial Times, have stoked concerns that the BoC may implement a more aggressive monetary easing cycle.

With Canadian inflation still uncertain, the upcoming CPI data could significantly influence the BoC’s decisions, especially as they gear up for their October policy meeting.

• BoC Governor Macklem hints at 50 bps rate cut.
• Canadian Dollar remains vulnerable ahead of inflation data.
• Traders will watch August CPI closely for clues on future policy shifts.

USD/CAD Technical Outlook: Key Levels to Watch

The USD/CAD is trading at $1.35918, up 0.08% for the day, showing mild bullish momentum as the pair hovers above its key pivot at $1.3583.

The 50-day Exponential Moving Average (EMA), currently positioned at $1.3567, is offering a solid base of support for the bulls.

Immediate resistance is located at $1.3615, and a break above this could lead to further gains, with additional resistance at $1.3640 and $1.3662.

On the downside, support is found at $1.3548, followed by $1.3519 and $1.3486.

• Immediate Resistance: $1.3615, $1.3640, $1.3662
• Immediate Support: $1.3548, $1.3519, $1.3486

The RSI stands at 55, indicating a neutral stance, with neither bulls nor bears fully in control.

Traders looking to take advantage of the bullish momentum might consider entering above $1.35833, targeting $1.36262, with a stop loss at $1.35568.

However, failure to hold above $1.3583 could result in a test of lower support levels.

In conclusion, while the USD/CAD shows signs of strength, ongoing uncertainties surrounding the Fed’s and BoC’s rate decisions could lead to heightened volatility in the near term.