**USD/CAD Weekly Forecast: Fed and BoC Pause Weighs on Outlook as Market Eyes Economic Divergence**
*Original article by Kenny Fisher, adapted and expanded for educational purposes*
The USD/CAD currency pair enters a critical junction as both the Federal Reserve (Fed) and the Bank of Canada (BoC) take a cautious approach, signaling possible pauses in their respective tightening cycles. With inflation gradually cooling and global economic uncertainties intensifying, traders are closely monitoring macroeconomic indicators, central bank rhetoric, and commodity price dynamics, especially oil, to gauge the currency pair’s next direction.
In the past week, USD/CAD showed moderate volatility, swinging between gains and losses as economic reports from both the U.S. and Canada offered mixed signals. The pair finished the week around the 1.3200 level, indicating a wait-and-see mode from market participants.
In this comprehensive weekly outlook, we explore recent developments, upcoming inflation and GDP data, central bank narratives, oil price behavior, and technical analysis for the USD/CAD pair.
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## Recent Developments: Mixed Economic Signals Guide the Pair
USD/CAD experienced moderately choppy trading in the past trading sessions, largely driven by shifting sentiment around central bank decisions and volatile commodity prices. Key economic figures revealed some divergence between the U.S. and Canadian economies, adding complexity to the exchange rate direction.
### United States
– The U.S. GDP for Q2 2025 came in at a 2.1% annualized growth rate, slightly below expectations of 2.3% but still reflecting economic resilience.
– Durable goods orders climbed 0.6%, above market projection, further underscoring momentum in the manufacturing sector.
– However, the core Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, showed a softer 0.2% monthly rise in June, bringing the annual rate down to 3.0%.
– Labor market data, particularly weekly jobless claims, remained stable but showed early signals of loosening.
### Canada
– Canada’s June inflation decelerated to 2.7%, much closer to the Bank of Canada’s 2% target, prompting discussion about rate cuts toward the end of 2025.
– Retail sales were robust, rising 0.9% in May, though concerns remain over consumer credit stress amid higher borrowing costs.
– GDP growth stalled in May at 0.0%, missing expectations of a 0.2% rise, suggesting Canada’s economy may be slowing faster than anticipated.
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## Central Bank Outlook: Both the Fed and BoC Signal Dovish Shifts
### Federal Reserve
– The Federal Reserve held interest rates steady in its last meeting, maintaining the range at 5.25% to 5.50%.
– Fed Chair Jerome Powell acknowledged cooling in inflation but emphasized that “the fight is not over,” suggesting rates will remain elevated for a prolonged period rather than risk a resurgence in inflation.
– Futures markets are now pricing in a roughly 60% chance of a rate cut by March 2026, according to CME FedWatch.
– Policymakers are divided over timing, as some members push for a prolonged high-rate environment, while others see room for easing by early 2026 if inflation continues to slide.
### Bank of Canada
– The BoC, under Governor Tiff Macklem, also held rates steady at 5.00% and signaled it would monitor data before any further moves.
– With inflation closer to the BoC’s target and GDP growth plateauing, economists and traders are increasingly betting on a rate cut in Q1 2026.
– The latest language from Governor Macklem suggested the bank was “potentially at terminal,” barring inflationary shocks.
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## Oil Prices and USD/CAD Correlation
Given Canada’s status as a major oil exporter, movements in crude oil prices significantly influence the CAD. Brent and WTI
Read more on USD/CAD trading.