Original article credit: Michael Boutros, FOREX.com
Title: Canadian Dollar Outlook: USD/CAD Trades Near Key Resistance Ahead of Critical Economic Data
The Canadian dollar (CAD) is at a crucial juncture as it continues to trade within a narrowing range against the US dollar (USD), with the USD/CAD pair testing significant technical resistance levels. Market participants are closely watching how the pair behaves around its multi-month downtrend line ahead of major economic catalysts. The interplay between central bank expectations, oil prices, and broader risk sentiment continues to drive the USD/CAD dynamics, with traders preparing for volatility in the days ahead.
This comprehensive analysis will delve into:
– Current technical outlook for USD/CAD
– Key levels to monitor
– Fundamental drivers, including oil prices and interest rate differentials
– Market expectations around Canadian and US economic data
– Potential trading strategies moving forward
Technical Outlook: USD/CAD Stalls Below Yearly Downtrend
The USD/CAD pair has been coiling tightly below a critical resistance zone that has capped gains since the start of 2023. For over eight months, a descending trendline extending from last year’s highs has limited the pair’s ability to build bullish momentum.
As of September 7, 2025, the pair is pushing against the 1.3650 resistance level, just shy of the trendline that defines the 2023–2025 bearish channel. Traders are watching closely to see if this level will be rejected once again or if bulls can generate enough pressure to trigger a breakout.
Key technical highlights:
– The USD/CAD remains within the confines of a bearish price channel that began in October 2023.
– Key resistance sits at 1.3650–1.3670, representing both the upper boundary of the descending trendline and the 38.2% Fibonacci retracement of the March–July decline.
– A clear break and close above this zone would invalidate the bearish structure and may initiate a rally toward the 1.3800 level, followed by 1.3860 and the 2024 high of 1.3898.
– Immediate support lies near 1.3500, which aligns with the May swing low.
– A breakdown below 1.3400 would signal a resumption of the broader downtrend, targeting the June low at 1.3310 and possibly the March low near 1.3230.
The Relative Strength Index (RSI) on the daily chart has been neutral, oscillating around the midpoint without providing a clear directional bias, underscoring the consolidation phase seen in recent weeks.
Fundamental Drivers: Diverging Monetary Policies and Oil Prices
A significant source of volatility for USD/CAD comes from the policy divergence between the Bank of Canada (BoC) and the US Federal Reserve (Fed), as well as fluctuating oil prices — a key driver for the Canadian economy.
1. Bank of Canada’s Policy Outlook
– The BoC has maintained a relatively cautious stance, with inflation persistently above its 2% target.
– Despite earlier rate hikes, there is speculation that the central bank could pause further tightening amidst signs of economic slowdown.
– Canada’s GDP contracted marginally in Q2 2025, increasing pressure on the BoC to balance inflation control with growth risks.
During the latest BoC monetary policy meeting, policymakers left the overnight rate unchanged at 5.00%. However, they signaled data dependency, indicating that future rate moves would be based on inflation and labor market data.
2. US Federal Reserve’s Policy Path
– The Fed has maintained a hawkish tone, emphasizing the need to ensure inflation returns to its 2% target.
– The US economy continues to show resilience, with strong labor market reports and robust consumer spending.
– As of early September, the CME FedWatch Tool suggests a 60% probability of another hike before year-end, though expectations remain fluid.
The policy divergence bolsters
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