**USD/CAD Forecast: Dollar Weakens as Investors Anticipate Fed Rate Cut**
*Original article by Yohay Elam, expanded and rewritten*
The US dollar has entered a fragile state against the Canadian dollar, as markets adjust expectations around potential interest rate cuts by the Federal Reserve. We are entering a volatile period for the forex market, defined by macroeconomic shifts, central bank policy signals, and growing concerns surrounding the global economic outlook.
This week is crucial for the USD/CAD pair, as both the US Federal Reserve and the Bank of Canada (BoC) are influencing price action through data-dependent policy outlooks. The latest movements in the USD/CAD reflect a market caught between diverging central bank trajectories, oil price volatility, and important macroeconomic indicators.
Let’s break this down further and analyze what’s driving USD/CAD price action, what traders are watching, and what to expect in the near term as we head toward Q4 2024 and early 2025.
## Current Market Overview
1. **USD Weakness Linked to Fed Rate Cut Expectations**
– Investors are increasingly confident that the Federal Reserve will cut interest rates in the first half of 2025.
– Weak US inflation data, easing jobs growth, and signs of a slowdown in consumer spending have fed into expectations for a monetary pivot from the Fed.
– The CME FedWatch Tool shows markets pricing in at least one rate cut by mid-2025.
– Treasury yields have fallen across the curve, putting pressure on the dollar.
– As expectations for rate cuts firm up, the USD has lost ground against most major currencies, including the Canadian dollar.
2. **BoC Maintains Cautious Tone**
– The Bank of Canada has taken a more cautious stance, keeping rates on hold but expressing openness to future adjustments based on data.
– Canada’s economy continues to display resilience, with tight labor markets and ongoing inflation pressures.
– BoC Governor Tiff Macklem stated that the central bank is watching housing and wage inflation closely and will adjust policy accordingly.
– Unlike the Fed, the BoC has avoided giving outright guidance on rate cuts, creating a divergence in monetary policy outlooks.
3. **Oil Prices Provide Support for CAD**
– As a major exporter of crude oil, the Canadian dollar remains sensitive to global oil prices.
– Brent crude and WTI have recently pushed higher amid tightening global supply and geopolitical tensions.
– Forecasts from OPEC+ and projections of higher seasonal demand have supported oil prices above $85 per barrel.
– A stronger oil sector translates to stronger Canadian trade balances, providing tailwinds to CAD.
## USD/CAD Technical Analysis
The USD/CAD pair has shown significant consolidation over recent weeks, after peaking near the 1.39 level earlier in 2024. The recent downturn in USD strength has led to a decline in the pair, bringing it closer to the 1.32–1.33 range.
Key technical levels to watch:
– **Resistance Levels:**
– 1.3600 (psychological and technical resistance)
– 1.3760 (August swing high)
– 1.3900 (yearly high)
– **Support Levels:**
– 1.3400 (short-term support)
– 1.3280 (September low)
– 1.3220 (key moving average level)
Momentum indicators like the RSI and MACD suggest a bearish tone might persist in the near term, although markets may see a bounce if yields recover or headline economic data surprises to the upside.
## Market Drivers for USD/CAD
Several fundamental forces are influencing the USD/CAD exchange rate. These include:
### 1. **Federal Reserve Policy**
– The Fed has held interest rates at a two-decade high since mid-2023.
– More recent data suggests inflation is easing back toward the Fed’s
Read more on USD/CAD trading.