**USD/CAD Weekly Outlook: Markets Anticipate Policy Pauses from the Fed and BoC**
*Adapted and expanded from an article by Kenny Fisher for Forex Crunch*
The USD/CAD currency pair is poised for another volatile week as traders brace for a possible policy pause by both the Federal Reserve and the Bank of Canada (BoC). As inflationary trends show signs of easing and global economic growth tapers, central banks in North America may opt to maintain interest rates at current levels, signaling a shift away from the aggressive hiking cycle seen throughout 2022 and 2023.
In recent weeks, mixed economic data from both the US and Canada, coupled with dovish commentary from central bank officials, have intensified speculation that rate cuts may be on the horizon. This is leading to increased volatility in forex markets, where the USD/CAD pair is highly sensitive to interest rate expectations, oil price fluctuations, and economic indicators from both countries.
Below, we delve into key drivers shaping USD/CAD this week and beyond.
## Last Week Recap: USD/CAD Softens Amid Cooling US Economy
Last week, the USD/CAD pair saw modest downward pressure as several macroeconomic data releases pointed to a cooling in the US economy:
– The US dollar was dragged down after Q2 GDP data revealed annualized growth of just 1.9%, undershooting expectations of 2.2%.
– Core Personal Consumption Expenditures (PCE), the Fed’s preferred gauge of inflation, rose 2.6% year-over-year in June, down from 2.8% in May and the slowest pace since March 2021.
– US jobless claims came in higher than forecast, suggesting some softening in the labor market—a key area the Fed monitors closely when assessing monetary policy.
The Canadian dollar, meanwhile, benefited from a rebound in crude oil prices. As Canada is a major oil exporter, the rise in West Texas Intermediate (WTI) to above $81 per barrel helped support CAD bulls.
Despite this, USD/CAD remains range-bound near the 1.32 level as uncertainty prevails over upcoming central bank actions.
## Key Economic Events This Week (July 29 – August 2)
### United States
The US has a packed economic calendar this week, which could significantly impact USD/CAD:
– **Fed Policy Meeting (July 31):**
Markets widely expect the Federal Reserve to hold interest rates at 5.25% to 5.50%. While inflation is cooling, policymakers remain cautious about declaring victory too soon. Traders will monitor Fed Chair Jerome Powell’s post-meeting press conference for any hints on future rate cuts.
– **ISM Manufacturing PMI (August 1):**
The ISM index has remained below 50 for several consecutive months, signaling contraction. A better-than-expected reading could support USD strength.
– **Non-Farm Payrolls (August 2):**
July’s jobs report is forecast to show job creation of around 180,000, down slightly from June’s 209,000. Any surprise, either higher or lower, could cause sharp movement in USD pairs.
### Canada
Canada also presents several data releases that could shift the loonie’s trajectory:
– **BoC Policy Meeting (July 30):**
The Bank of Canada is expected to maintain its overnight rate at 5.00%. Governor Tiff Macklem recently signaled that the Canadian economy is “clearly cooling,” reinforcing market expectations of a rate pause. However, any shift in tone could be market-moving.
– **Canada GDP (May figures – July 31):**
Monthly GDP is forecast to show minimal growth, underscoring the sluggishness in the Canadian economy. A negative print could increase the likelihood of policy easing later in the year.
– **Employment Report (August 2):**
Canada’s July employment numbers will give further clarity on the strength
Read more on USD/CAD trading.