The USD/CAD currency pair surged to fresh three-month highs, reaching 1.3915 during Asian trading hours on Friday, marking the fourth consecutive session of gains. The pair’s upward momentum reflects a strengthening US Dollar (USD) amid easing market expectations for an imminent Federal Reserve (Fed) rate cut.
Traders are closely monitoring Fed Chair Jerome Powell’s upcoming speech at the Jackson Hole Symposium in Wyoming, which could provide critical insights on the September policy outlook and shape the near-term trajectory of the USD/CAD pair. Broker Ellie Grey from ProDivia Group shares a structured analysis of the subject.
According to the CME FedWatch Tool, traders in Fed funds futures are currently assigning a 74–75% probability to a rate cut in September, down from 82% earlier this week. This shift in market sentiment comes after strong US economic data, especially in the Manufacturing and Services sectors, alongside a rise in Initial Jobless Claims, indicating a complex yet resilient US economy.
US Economic Data Bolsters USD
The S&P Global US Composite PMI for August rose to 55.4 from 55.1 in July, signaling continued growth in business activity. The Manufacturing PMI stood out, climbing to 53.3, well above the expected 49.5 and the previous 49.8, showing strength in industrial output.
On the other hand, the Services PMI slipped slightly to 55.4 from 55.7 but remained above forecasts of 54.2, underscoring resilience in the service sector.
Simultaneously, US Initial Jobless Claims increased to 235K, marking an eight-week high and surpassing estimates of 225K. While the rise points to a slight softening in the labor market, it has not undermined the overall USD strength, as markets interpret the data as part of a broadly healthy economic environment.
Canadian Data Adds Complexity
The CAD faces mixed signals as markets weigh the US Dollar’s momentum against domestic Canadian factors. Canada’s Industrial Product Price Index (IPPI) rose 0.7% month-over-month in July, above the market expectation of 0.3% and following a 0.5% gain in June.
The increase in the IPPI indicates rising producer price pressures and could limit the Bank of Canada (BoC)’s scope for additional rate cuts.
Higher industrial prices in Canada may encourage a more hawkish BoC stance, reducing expectations for further monetary easing. This dynamic provides potential support for the CAD, which could moderate USD/CAD gains if the BoC signals tighter policy in upcoming communications.
As a result, traders must consider both US and Canadian economic data when assessing near-term USD/CAD movements.
Jackson Hole in Focus
The market is now laser-focused on Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium. Investors will look for any comments on inflation, labor market conditions, and monetary policy guidance.
A dovish tone or hints of a rate cut could trigger a short-term USD retracement, potentially allowing the CAD to recover some ground. Conversely, hawkish or neutral remarks could reinforce USD strength, pushing USD/CAD toward resistance levels near 1.3950–1.4000.
Powell’s remarks are particularly important as they may clarify whether the Fed is prepared to pause, continue easing, or adjust its policy trajectory in light of robust PMI data and a slightly softening labor market. This context makes USD/CAD highly sensitive to central bank communication, with traders likely adjusting positions immediately following the speech.
Technical Analysis
From a technical perspective, the USD/CAD breakout above 1.3900 represents a critical resistance level that has now been tested and may act as a new support zone. The fourth consecutive session of gains highlights momentum in favor of the USD. Traders should watch moving averages, trendlines, and volume indicators to confirm whether the pair can sustain above 1.3915.
Potential retracement levels around 1.3850–1.3870 may offer buying opportunities, especially if Powell’s comments suggest continued Fed caution. On the upside, resistance near 1.3950–1.4000 is likely to be tested if the USD maintains strength amid diminished rate-cut expectations.
Outlook
The USD/CAD pair remains well-supported by a combination of strong US economic indicators, resilient PMIs, and reduced market expectations for Fed easing. While Canadian inflation data provides some support for the CAD, the USD’s upward momentum continues to dominate short-term price action.
Traders and analysts are particularly attentive to central bank communication from both the Fed and BoC, as these will be key determinants of near-term volatility and trend continuation.
Conclusion
The USD/CAD pair trading near three-month highs at 1.3915 reflects a confluence of economic, monetary, and technical factors. The upward trajectory is supported by strong US PMIs, higher jobless claims, and reduced Fed rate-cut probabilities, while the CAD finds limited support from stronger-than-expected industrial prices.
With Fed Chair Powell’s speech at Jackson Hole imminent, the market is poised for potentially significant short-term movements in USD/CAD, requiring careful monitoring of economic data and technical levels.
