**USD/CAD Forecast Ahead of Upcoming Fed and BoC Decisions**
*Based on original reporting by Crispus Nyaga, Invezz*
The US dollar to Canadian dollar (USD/CAD) currency pair has seen notable volatility in recent trading sessions as investors brace for upcoming interest rate decisions from two of the world’s most closely watched central banks: the US Federal Reserve (Fed) and the Bank of Canada (BoC). This article delves into what traders can expect, examining the key economic indicators, central bank policies, technical market patterns, and external factors shaping the USD/CAD exchange rate outlook.
## Current Market Overview
As of the last week of July 2025, USD/CAD is trading near 1.3220, having experienced a strong rebound from its recent low of 1.3110. This recovery comes amid renewed strength in the US dollar, fueled by encouraging economic figures and uncertainty about the Fed’s rate guidance path. Simultaneously, the Canadian dollar remains supported by stable oil prices and a relatively firm domestic economy.
## Key Factors Influencing USD/CAD
### 1. Economic Outlook in the United States
The US economy has shown signs of resilience despite global headwinds, with consumer and labor market data strengthening the argument for keeping interest rates elevated. Notable data points include:
– **US GDP (Q2 2025)**: The latest figures showed the US economy expanded by 2.3% annually, exceeding expectations of 1.9%.
– **Inflation Indicators**: Core Personal Consumption Expenditures (PCE), the Fed’s preferred inflation gauge, remains above 2.5% on a year-over-year basis. While consumer prices have moderated from 2023 levels, the persistence of services inflation is keeping upward pressure on prices.
– **Labor Market**: Unemployment remains low, swinging between 3.6 and 3.8%. Weekly jobless claims have remained below the critical 250,000 threshold.
– **Retail Sales and Consumer Confidence**: These figures suggest American households are still spending, although there are signs of stress from rising credit card balances and student loan repayments returning.
### 2. Canadian Economic Conditions
Canada’s economy is showing moderate growth with inflation retreating within target levels. However, uncertainty persists, particularly related to consumption and housing:
– **GDP Growth (Q2 2025)**: Canada’s economy grew by just 0.3% during the quarter, underperforming expectations.
– **Headline Inflation**: Consumer Price Index (CPI) year-over-year dropped to 2.1%, suggesting price pressures are under control, aided by declines in housing and gas prices.
– **Core Inflation**: Measures excluding food and energy remain sticky, hovering around 2.4%.
– **Employment**: Canada added 14,000 jobs in June 2025. However, wage growth has cooled, now under 3.0% YOY.
– **Oil Prices**: Brent crude is trading above $78 per barrel, providing some support for the energy-reliant Canadian economy.
### 3. Central Bank Policy Updates
Both the BoC and the Fed are closely monitoring economic data to guide their policy decisions. Here’s what markets are pricing in:
#### US Federal Reserve
– The Fed is expected to hold interest rates steady at the upcoming July 31st meeting, maintaining the Federal Funds Rate at 5.25–5.50%.
– An increasing base of analysts now expect only one rate cut in 2025, possibly delayed until Q4.
– Fed Chair Jerome Powell has voiced concerns about premature easing, emphasizing the importance of anchoring inflation expectations.
#### Bank of Canada
– The BoC already cut its benchmark interest rate by 25 basis points in June 2025, bringing it to 4.50%.
– Another cut may follow in the September meeting if inflation continues to retreat and wage growth does not accelerate.
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