Fundamental Overview
The USD came under some pressure since Friday following the softer than expected US CPI report and then the US-China preliminary deal over the weekend. Overall, the market pricing didn’t change much as it was already very dovish going into the CPI and the trade talks, but given the positive risk sentiment, the greenback continued to stay on the backfoot.
The risk-on sentiment is expected to weigh on the dollar in the short-term, although Treasury yields could also erase the drop triggered by Trump’s escalation a couple of weeks ago. This could create some tension between bullish and bearish drivers, but for now there’s no strong reason for the dollar to rally amid the lack of key US data.
The Fed is expected to cut interest rates by 25 bps and bring their policy rate to 3.75-4.00%. Fed's Miran will likely dissent again for a 50 bps cut. The Fed is also expected to announce an end to QT.
We won't get the SEP at this meeting, so the focus will be mostly on the Press Conference where Fed Chair Powell is expected to frame the rate cut as a risk management move once again and keep the status quo in terms of expectations by not giving much away. If Powell casts doubt on a December cut though, then that will be taken as a hawkish surprise and should give the greenback a boost.
On the CAD side, the BoC is expected to cut interest rates by 25 bps and bring their policy rate to 2.25% which is the lower bound of their estimated neutral range (2-25%-3.25%). The market still sees good chances for the BoC to end the cycle at 2.00% sometime in 2026.
The expectations for a cut got solidified mainly by some dovish BoC Governor Macklem's comments and by the renewed tensions between US and Canada on the tariffs front. We all know that eventually the US and Canada will get along, but for now this risk is keeping the BoC on the dovish side.
In terms of economic data, the most recent employment and inflation reports both surprised to the upside, so there's a good chance the BoC can signal an extended pause, which will likely be taken as slightly hawkish but not a game changer.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD fell below the key 1.4018 level and extended the drop as more sellers piled in. The target should be the upward trendline where we can expect the buyers to step in with a defined risk below the trendline and position for a rally into new highs. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the 1.3721 level next.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a minor downward trendline defining the bearish momentum. If we get a pullback into it, we can expect the sellers to lean on the trendline with a defined risk above it to keep pushing into new lows. The buyers, on the other hand, will look for a break higher to pile in for a rally into new highs.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much else we can add here but we can see more clearly the resistance around the 1.3973 level where we have the trendline for confluence. Again, that’s where we can expect the sellers to step in to keep pushing into new lows, while the buyers will look for a break higher to target new highs. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we have the BoC and FOMC policy decisions. Tomorrow, we have the Trump-Xi meeting. On Friday, we conclude the week with the Canadian GDP.
