USD/CAD Cautious on Fed Cut Hopes despite Soft Canadian inflation
USD/CAD Analysis
The Bank of Canada is at the forefront of monetary easing since it slashed rates in early June for the first time in four years and doubled down with consecutive cuts a few weeks ago. Rates now stand at 4.5%, but policymakers are unlikely to stop there, as they gain confidence that inflation will return to target.
After the last decision, Governor Macklem pointed to more cuts "if inflation continues to ease" [1] and this week's data showed further progress, strengthening the case for another rate cut in September. CPI rose by 2.5% y/y in July, marking the slowest pace in more than three years.
However, USD/CAD found little help from the CPI report, as hopes for aggressive Fed rate cuts persist and weigh on the greenback. The soft US employment data at the start of the month sparked recession fears and markets price in at least four cuts in the next three meetings.
These heightened expectations around the Fed (along with risk outflows) have led USD/CAD to a losing month and the breech of the 200Days EMA (blue line), although strong catalyst would be needed for sub-1.3419 moves. On the other hand, the move looks stretched technically and fundamentally. The BoC is expected to cut again, whereas the Fed retains cautious stance and market bets appear exaggerated, so there is room for disappointment. A push to reclaim the EMA200 (black line) would be reasonable and successful effort would a pose the bearish bias, although new 2024 highs (1.3947) have higher degree of difficulty.
In any case, the trajectory of the pair will be determined by incoming events, highlighted by Fed Chair Powell's speech at the Jackson Hole Symposium on Friday.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
References
| Retrieved 26 May 2026 https://www.bankofcanada.ca/2024/07/opening-statement-2024-07-24/ |
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