**USD/CAD Forecast Ahead of the Federal Reserve and Bank of Canada Meetings**
*Written with reference to an article by Crispus Nyaga for Invezz*
The USD/CAD currency pair is gearing up for substantial activity in anticipation of key monetary policy announcements by two of the most influential central banks: the US Federal Reserve (Fed) and the Bank of Canada (BoC). These rate decisions are crucial as investors seek clues on future interest rate expectations, economic strength, and policy direction, all of which influence forex markets significantly.
At the time of writing, USD/CAD trades close to 1.3700, slightly off its recent peak of 1.3787. This article explores current developments impacting the pair, including the economic outlooks for both the US and Canada, upcoming central bank decisions, and technical analysis forecasting where the currency pair could head next.
## Overview of USD/CAD Movements
The USD/CAD currency pair has displayed a slight bearish correction recently, retreating from multi-week highs. Nevertheless, trading activity remains elevated, as traders react to mixed economic data and brace for upcoming policy decisions.
– The US dollar (USD) has retained strength throughout much of 2024 and 2025, powered by persistent inflation, robust employment figures, and cautious Fed commentary.
– The Canadian dollar (CAD), meanwhile, has seen mixed performance. Though supported by steady oil prices and relative economic resilience, it has underperformed versus the greenback amid concerns over consumer weakness and plateauing economic growth.
## Key Market Drivers
Several major economic factors are currently influencing USD/CAD volatility:
### 1. Federal Reserve Interest Rate Policy
The US Federal Reserve continues its battle with sticky inflation, even well into 2025. While much of the market expected multiple rate cuts during the year, inflation remains above the Fed’s 2 percent target, prompting it to delay easing monetary policy.
– In its most recent meeting, the Fed maintained the federal funds rate in the target range of 5.25–5.50 percent—the highest in two decades.
– Economic data including May and June’s Consumer Price Index (CPI) reports suggest that core inflation remains elevated, sustaining the Fed’s cautious tone.
– Strong US job reports and increased wages also support the Fed’s narrative that the labor market remains hot, thus allowing the central bank to stay higher for longer.
Market analysts now expect the Fed to potentially delay its first rate cut until late Q3 or even Q4 2025, depending on upcoming inflation readings. This hawkish bias supports the USD.
### 2. Bank of Canada Policy Outlook
The Bank of Canada is facing the opposite challenge: a slowing economy coupled with moderate inflation. After initially holding interest rates steady, the BoC has turned more dovish recently.
– In June, the BoC initiated a 25 basis point rate cut, the first in several years, lowering its benchmark to 4.75 percent.
– Governor Tiff Macklem pointed to slowing consumer demand, declining retail sales, and rising household exposure to variable mortgage rates, signaling a willingness to ease further.
Multiple Canadian bank economists, including those at RBC and TD Bank, now project another 25 basis point rate cut by the end of Q3 2025.
That divergence in policy trajectory from the Federal Reserve supports the case for a stronger USD against the Canadian dollar.
### 3. Oil Prices and Canadian Dollar Correlation
Canada is a major oil exporter, and the performance of crude oil prices typically has a notable impact on the Canadian dollar.
– West Texas Intermediate (WTI) prices have been trading above $80 per barrel, consolidating support from geopolitical tensions and OPEC+ production discipline.
– Yet, oil’s upside has been muted by concerns about slowing global growth, especially from China and Europe, limiting CAD appreciation potential.
Though oil prices are relatively supportive for CAD, they are not enough to offset the stronger USD narrative driven by diverging interest rate expectations.
Read more on USD/CAD trading.