FX.co ★ USD/CAD. Analysis and Forecast

The rise of the USD/CAD pair is also limited by the weakness of the U.S. dollar, driven by increasing expectations of more aggressive monetary easing by the Federal Reserve. There is a 45% chance that, following the two-day monetary policy meeting on September 18, the U.S. central bank will cut borrowing costs by 50 basis points. These expectations grew after the release of the U.S. Producer Price Index (PPI), which provided additional evidence of declining inflation.

According to the U.S. Bureau of Labor Statistics, the year-on-year core PPI rose by 1.7%, compared to estimates of 1.8%, and the previous month's figure was revised down from 2.2% to 2.1%. Moreover, the core PPI, excluding volatile food and energy prices, remained stable year-on-year at 2.4%, missing the forecast of 2.5%. This fueled speculation about a more substantial rate cut at next week's meeting.

Meanwhile, dovish expectations from the Fed are driving down the yield on 10-year U.S. Treasury bonds to their lowest level since May 2023. This, along with a positive risk tone, contributes to the intraday decline of the U.S. dollar.

Friday's release of the preliminary University of Michigan consumer sentiment index could create short-term trading opportunities. Thus, this mixed fundamental backdrop suggests that sustained strength beyond the key psychological level of 1.3600 is needed to support the prospects for continued recovery from the multi-month low reached in August.

Technical Outlook

From a technical perspective, oscillators on the daily chart have not yet confirmed a positive shift, indicating that any further upward movement may continue to face resistance near the 1.3620–1.3625 level. However, sustained strength beyond this zone could trigger technical buying, allowing spot prices to recover to the 1.3700 level.

On the other hand, a drop below the 1.3565 level is likely to present a buying opportunity. A decisive break below this level would suggest that the recent rebound seen over the past two weeks has run its course, leaving the USD/CAD pair vulnerable to a slide back towards the 1.3440 level reached last month. The downward trajectory could extend further towards the 1.3400 round level and below.