The USD has weakened against major currencies as market expectations for rate cuts have risen to three by year-end. This shift follows recent US data consistently falling short of expectations, raising concerns about economic growth amid tariff policies.
The Federal Reserve’s potential actions may be affected by increasing inflation expectations, which could limit rate cuts if inflation remains high. Attention is focused on upcoming NFP and CPI reports for further direction.
Canadian Dollar And Trade Risks
In Canada, economic data is improving, supporting the CAD, although risks from tariffs have caused a recent decline in value. The implementation of 25% tariffs on Canada and Mexico has added pressure.
On the daily chart, USDCAD reached 1.45 amid tariffs news, but market reactions suggest hope for a resolution. The 4-hour chart shows a bullish trendline, with buyers aiming for new highs unless a drop below 1.4365 occurs.
On the 1-hour timeframe, buyers seek a rebound near the trendline or 1.4365, while sellers anticipate a break for lower targets. Upcoming events include tariffs discussions, US ADP, ISM Services PMI, jobless claims, Canadian employment figures, and the US NFP report.
The recent depreciation of the US dollar comes as traders increasingly expect interest rate cuts, with forecasts now pointing to three reductions before the end of the year. This adjustment in sentiment follows a string of weaker-than-expected US economic reports, adding to concerns about slowing growth, especially in light of ongoing tariff measures. As a result, markets have grown more cautious, reassessing previous assumptions about monetary policy.
Federal Reserve policymakers now face a difficult balance. With inflation expectations rising, the central bank may hesitate to ease policy too aggressively. If inflation remains elevated, the scope for rate cuts could be limited, forcing officials to weigh the economic slowdown against persistent price pressures. In the coming days, labour market data and inflation figures will be closely watched to gauge how these forces may influence decision-making.
The Canadian dollar, meanwhile, has gained support from stronger domestic data, contrasting with some of the weakness seen south of the border. However, trade risks remain a headwind. The imposition of 25% tariffs on Canadian and Mexican exports has sparked volatility, leading to a recent slide in value despite broader improvements in economic indicators.
Technical Outlook On USDCAD
From a technical standpoint, the USDCAD pair reacted strongly to the tariff developments, touching 1.45 before pulling back. Market behaviour suggests that investors are not fully convinced these trade tensions will escalate indefinitely. On the four-hour timeframe, buyers have defended a key trendline, signalling confidence in a continuation of recent gains. However, any decisive break below 1.4365 could shift momentum in favour of sellers.
Shorter-term movements are also reflective of this back-and-forth sentiment. The one-hour chart highlights buyers stepping in near the trendline and the aforementioned support level, expecting a rebound. Conversely, those positioned for a downside move are looking for a clear break lower to signal more selling pressure. The upcoming days bring a series of economic events, including tariff negotiations, US employment data, an update on the services sector, and Canadian labour market figures. These releases will provide further insight into whether recent price action has been a temporary adjustment or the starting point of a more sustained trend.
