**US Dollar Forecast: USD/CAD Rallies for Three Consecutive Days Amid Shifting Economic Outlook**
*Original report by David Song, Forex.com. Expanded and adapted with additional data and analysis.*
The US dollar (USD) has been on a robust upward trajectory against the Canadian dollar (CAD), as the USD/CAD currency pair extended its rally for a third consecutive session. With investors digesting U.S. macroeconomic data and Federal Reserve outlooks while also positioning themselves ahead of key market events, the USD/CAD trend highlights shifting sentiment around North American economies, commodity prices, and monetary policy.
In this article, we analyze the factors contributing to the USD/CAD rally, examine the technical and macroeconomic backdrop, and consider forward-looking projections in light of central bank actions and global risk sentiment.
## Recent Performance of USD/CAD: A Quick Recap
The USD/CAD pair gained ground for three straight sessions through the start of September 2025. The upward trend reflects growing confidence in the U.S. economy’s resilience and a corresponding rise in expectations for a more prolonged restrictive rate environment from the Federal Reserve.
Key highlights:
– USD/CAD moved toward the 1.3750 level, reflecting increased demand for the US dollar.
– The 3-day rally counters some of the earlier weakness seen in August, driven by softer economic readings from the United States and volatility in oil markets.
– The Canadian dollar remains vulnerable due to weaker domestic data and a decline in crude oil prices, one of Canada’s chief exports.
## Macroeconomic Drivers: United States vs. Canada
A side-by-side comparison of economic indicators from the U.S. and Canada explains much of the recent USD/CAD movement:
### United States
The U.S. economy continues to show signs of moderate but persistent growth. The federal funds rate remains high following multiple interest rate hikes since 2022, with Federal Reserve officials pointing to their commitment to achieving the 2% inflation target.
Important data points:
– Non-Farm Payrolls (NFP) reports in recent months have shown solid job creation, although at a moderating pace.
– The ISM Manufacturing and Services indices remain above contractionary levels, indicating ongoing economic activity.
– Inflation, as measured by the Core Personal Consumption Expenditures (PCE) Index, is gradually cooling but remains above the Fed’s 2% target.
– Recent statements from Federal Reserve Chair Jerome Powell and other Fed members reinforce their “higher-for-longer” policy inclination.
This mix of economic resilience and persistent inflation pressures supports the US dollar, as market participants price in tighter financial conditions amid potentially delayed rate cuts or extended pauses.
### Canada
In contrast, the Canadian economy is grappling with decelerating growth and weakening labor market conditions. Inflation has moderated more quickly than in the U.S., contributing to speculation that the Bank of Canada (BoC) may adopt a more dovish stance going forward.
Key Canadian data:
– GDP growth slowed to near-stagnation in Q2 2025, weighed down by weaker consumer spending and housing investment.
– The unemployment rate ticked higher, reflecting slack in the labor market despite earlier gains.
– Inflation measures, including CPI and core inflation, declined more significantly than expected in recent months.
– Oil prices, a critical revenue source and export for Canada, have seen downward pressure amid global demand concerns and rising U.S. inventories.
This economic divergence increases the probability that the BoC may consider rate cuts earlier than the Fed, lowering demand for the CAD compared to its US counterpart.
## Oil Prices: A Headwind for the Canadian Dollar
Crude oil remains one of the most influential variables for USD/CAD as Canada is a major oil exporter, and the loonie tends to be positively correlated with oil prices. In contrast, the U.S. is a net energy exporter but still benefits from lower input costs when oil prices soften.
In recent weeks:
– West Texas Intermediate (WTI
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