The USD/CAD exchange rate remained in a tight range last week, as neither the United States nor Canada released any major economic data. It will be in the spotlight this week as the August deadline on tariffs approaches and the central banks deliver key rate decisions.
Federal Reserve interest rate decision
The USD/CAD exchange rate will react to the upcoming interest rate decision by the Federal Reserve. Economists expect the bank to leave interest rates unchanged between 4.25% and 4.50%.
The Fed has maintained rates steady throughout the year, ignoring pressure from by Donald Trump. Trump has urged the bank to lower rates from their current range to near zero.
Most Fed officials believe that the bank should wait and see the impact of his tariffs on the economy and inflation. Recent data indicate that inflation is rising moderately. The headline inflation jumped from 2.4% in May to 2.7% in June. Core inflation moved from 2.8% to 2.9%.
Some Fed officials, however, have called for the central bank to cut rates in this meeting. They include Fed members like Christopher Waller and Michele Bowman.
The USD/CAD pair will also react to some important economic numbers from the US. For example, the US will publish the latest personal consumption expenditure (PCE) data on Thursday.
PCE is an important data as it is the Federal Reserve’s preferred inflation gauge. The US will also publish the first estimate of second-quarter GDP data on Thursday and the closely watched non-farm payrolls (NFP) on Friday.
Bank of Canada decision
The other key catalyst for the USD/CAD pair will be the upcoming Bank of Canada interest rate decision. Economists expect the report to show that the bank will leave interest rates unchanged at 2.75%.
It will do that as it observes the impact of the ongoing trade war on the economy. The most recent data showed that the headline consumer price index rose from 1.7% in May to 1.9% in June. It remains below the bank’s 2% target.
The closely watched core inflation figure moved from 2.4% in May to 2.6% in June. Unlike the Fed, the Bank of Canada has been more aggressive in cutting rates since last year.
The Fed and Canadian central bank decisions will come in a week when Trump’s tariff deadline will arrive. Trump has threatened to impose tariffs on Canadian goods.
There is a possibility that there will be no deal by August 1st as Mark Carney has warned that he will not accept a bad deal.
USD/CAD technical analysis
The daily chart shows that the USD to CAD exchange rate has been in a strong downtrend this year as the US dollar index tumbled. It has dropped from a high of 1.4795 to 1.3700 today.
The par formed a death cross as the 50-day and 200-day moving averages crossed each other. It has also formed a giant bearish pennant pattern slightly below the 61.8% Fibonacci Retracement level.
Therefore, the pair is likely to experience a bearish breakdown, with the next key level to watch being 1.3543, the lowest point reached this year.
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