The USD/CAD pair extended its gains into Thursday’s Asian session, trading close to 1.3870, but upside momentum remains capped as investors weigh the outlook for interest rate cuts from both the Federal Reserve (Fed) and the Bank of Canada (BoC).
Fed Rate Cut Bets Keep Dollar in Check
The US Dollar Index (DXY) stayed under pressure after weaker-than-expected Producer Price Index (PPI) data raised the likelihood of policy easing by the Fed. According to the CME FedWatch tool, markets have already fully priced in a 25 basis-point cut at the September meeting, while the chance of a larger 50 bps move has climbed to nearly 12%.
The US Bureau of Labor Statistics (BLS) reported that annual PPI inflation eased to 2.6% in August, down from 3.3% in July and below market forecasts. On a monthly basis, prices slipped 0.1%, reversing July’s strong 0.7% gain. This soft print further fueled speculation that the Fed will act aggressively on rates, especially with the Consumer Price Index (CPI) due later today. Economists expect headline inflation to rise 2.9% YoY, while core CPI is projected at 3.1% YoY.
Canadian Dollar Under Pressure from Weak Jobs Data
While the Greenback is losing ground globally, the Canadian Dollar (CAD) remains weighed down by expectations that the BoC will restart its easing cycle this month. Canada’s August jobs data disappointed sharply, with the unemployment rate rising to 7.1% from 6.9% in July, underscoring weakness in hiring momentum. The negative surprise has increased the likelihood of a BoC rate cut in the near term, keeping CAD on the defensive.
Technical Picture: 1.3900 Resistance Key
From a technical perspective, the USD/CAD pair is holding firm above the 1.3850 handle, but buyers may struggle to push prices decisively higher unless the pair clears resistance near 1.3900. On the downside, immediate support lies around 1.3800, followed by the 1.3740–1.3750 zone.
✅ Key takeaway: The short-term outlook for USD/CAD hinges on the US inflation reports. A softer CPI print could reinforce Fed rate cut bets and keep USD under pressure, while stronger-than-expected inflation may limit losses and offer bulls a chance to retest 1.3900.
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