**US Dollar Forecast: USD/CAD Extends Three-Day Rally on Surging Yields and Labour Market Optimism**
*Original article by Diego Colman, Forex.com. This expanded version includes supplemental insights and analysis from additional financial news sources to provide a broader outlook on the USD/CAD currency pair and its recent movements.*
—
The US dollar has experienced a notable resurgence, climbing higher against a basket of currencies. Among the pairs showing significant movement is USD/CAD, which recently staged a three-day rally. A combination of rising US Treasury yields, expectations surrounding the Federal Reserve’s monetary policy strategy, and contrasts with the Canadian economic outlook have driven this pattern.
This article offers an in-depth analysis of the factors behind the advance in USD/CAD, the broader US dollar landscape, and key indicators traders should monitor in the near term.
## USD/CAD Climbs as Treasury Yields Rise
Over the past week, the USD/CAD pair has shown impressive momentum, pushing higher as the US dollar benefits from strong macroeconomic data and shifting monetary policy expectations.
– The USD/CAD rally accelerated after better-than-expected US economic indicators, particularly in the labor market, reinforced the narrative that the Federal Reserve is likely to keep interest rates higher for longer.
– Benchmark 10-year US Treasury yields climbed above 4.3 percent, their highest levels since early 2024. This boost in yields typically enhances the appeal of the US dollar over lower-yielding currencies.
The Canadian dollar, on the other hand, has lagged, even as oil prices remained relatively stable. Typically, the loonie tracks crude since Canada is a major energy exporter. However, broad US dollar strength has outweighed any positive oil-related sentiment.
## Key Drivers of the Three-Day Rally
Several fundamental factors contributed to the recent uptrend in USD/CAD:
### 1. Federal Reserve’s Hawkish Tone
– Recent comments from Fed officials, as well as robust US economic data, have drastically reduced the odds of imminent interest rate cuts. In fact, expectations are shifting toward fewer cuts in 2024, or even a prolonged hold.
– According to the CME FedWatch Tool, the probability of a cut in the coming months has dropped significantly. While the beginning of the year had markets pricing in up to three cuts by December, many traders now see only one or two, if any.
This hawkish outlook supports the higher yields seen across the Treasury curve, reinforcing USD strength.
### 2. US Labor Market Resilience
– On Tuesday, the US JOLTS (Job Openings and Labor Turnover Survey) for August 2025 came in stronger than expected. Job openings rose to 9.5 million, well above the forecasted 8.9 million.
– Such data bolsters confidence in continued labor market strength and justifies the Fed holding steady or even remaining open to tightening if inflation re-accelerates.
A resilient labor market often correlates with sustained consumer spending and economic growth, which is fundamentally bullish for the dollar.
### 3. Canadian Economic Weakness
– On the Canadian front, domestic data has underwhelmed. Second-quarter GDP growth in Canada was mostly flat at 0.1 percent, raising concerns that the Canadian economy is weakening under the weight of higher interest rates.
– Additionally, the Bank of Canada appears more dovish compared to the Fed, signaling a greater openness to rate cuts should data continue to disappoint.
As monetary policy between the countries diverges, trader sentiment tilts in favor of the US dollar.
### 4. Oil Prices Not Enough to Support CAD
– Although oil prices have shown relative stability, trading near multi-month highs recently due to supply concerns in the Middle East and continued OPEC+ support, the loonie has not benefited.
– This signals that broader macro trends and rate differentials are overwhelming commodity-based influences on CAD valuations.
## Technical Analysis: USD/CAD Breaks Key Levels
From a technical standpoint, USD
Read more on USD/CAD trading.