The USD/CAD currency pair has shown a continued retreat from its recent multi-year highs despite a lack of strong bearish momentum. The distinct monetary policy paths of the United States and Canada continue to influence market dynamics, with the current situation expected to generate volatility in the days ahead. Traders are particularly focused on the upcoming U.S. Personal Consumption Expenditures (PCE) data and Canadian GDP figures as potential catalysts for movement in the currency pair.
Following a notable peak near 1.4600, USD/CAD has experienced a downtrend, with prices sliding to approximately 1.4430 during the early European trading session. This decline can be attributed, in part, to a slight dip in the U.S. dollar, though significant depreciation has remained elusive. Meanwhile, positive sentiment in equity markets has limited the greenback’s ability to build on its recovery from a one-month low.
The Federal Reserve recently maintained its interest rates, indicating a cautious approach towards monetary policy adjustments. This decision, coupled with expectations that domestic policies will drive inflation higher, has provided support to U.S. Treasury yields and, by extension, the U.S. dollar. In contrast, the Bank of Canada has been pursuing a dovish strategy, with its most recent interest rate cut marking the sixth consecutive reduction since June. This divergence is likely to continue to exert pressure on the Canadian dollar, reinforcing the upward bias for USD/CAD.
Moreover, ongoing concerns surrounding potential trade tariffs, particularly from the U.S. administration aimed at Canada and Mexico, are contributing to a weaker Canadian dollar. The decline in crude oil prices, essential for Canada’s economy, further exacerbates the situation, making the Loonie more vulnerable.
From a technical standpoint, the recent breakout from an over month-long trading range suggests continued bullish momentum, although there are signs of caution with the failure to secure a position above the 1.4500 psychological barrier. Should the pair decline past 1.4400, a further drop towards the 1.4300 level may occur. Conversely, sustained strength beyond 1.4500 could lead to renewed attempts at surpassing the 1.4600 level, potentially reaching towards the 1.4700 mark, aligning with historical highs.
