The USD/CAD currency pair entered the new week on the back foot, extending last Friday’s steep decline triggered by dovish guidance from Federal Reserve Chair Jerome Powell at the Jackson Hole Symposium. 

The pair retreated almost 0.8% to near 1.3820 on Friday and continues to show weakness in the Asian session on Monday, reflecting broad US Dollar softness amid shifting expectations for the Fed’s monetary policy outlook. This article from Primeber Group offers an in-depth look at the matter, thanks to broker Frederick Haas.

Powell’s Dovish Shift at Jackson Hole

The Jackson Hole Symposium often provides important signals for global markets, and Powell’s latest remarks introduced a more accommodative tone. He acknowledged that while inflation risks remain tilted to the upside, and the labor market is beginning to show downside vulnerabilities.

His key statement was widely interpreted as a signal that the Fed is preparing to reduce the degree of restrictiveness in its monetary stance. This acknowledgement effectively confirmed to investors that rate cuts are a plausible scenario in the coming months.

Market Repricing: Fed Rate Cut Expectations

Following Powell’s speech, futures markets quickly repriced expectations. According to the CME FedWatch Tool, there is now an 87% probability of a September interest rate cut. 

This marked increase in expectations has heavily pressured the US Dollar Index (DXY), which briefly dipped to a fresh four-week low near 98.00 before modestly recovering in early Asian trading.

The US Dollar’s weakness has weighed directly on the USD/CAD pair, preventing it from staging a recovery after Friday’s slide. With the Greenback under persistent selling pressure, traders have shifted focus to upcoming US macroeconomic releases that may influence the Fed’s next steps.

Canadian GDP Data in Focus

While US data dominate the global spotlight, Canadian releases will also carry significant weight for the Loonie. On Friday, Canada’s GDP data for June and Q2 will be published.

The Bank of Canada (BoC) has been navigating a complex policy environment, balancing persistently elevated inflation with softening domestic growth. Stronger GDP data would give the BoC more leeway to maintain a cautious stance on rate cuts, providing relative support to the CAD against the USD.

Technical Outlook for USD/CAD

From a technical analysis perspective, USD/CAD faces challenges in regaining upward momentum after Friday’s decline.

• The pair currently trades near 1.3820, testing short-term support.
• A break below this level could expose 1.3750, a region aligned with recent consolidation zones.
• On the upside, initial resistance is seen near 1.3900, followed by 1.3950, where selling pressure has capped rallies in recent sessions.

Momentum indicators such as the Relative Strength Index (RSI) suggest a near-term bearish bias, while moving averages indicate that the broader uptrend remains intact as long as the pair holds above the 1.3650–1.3700 region.

Broader Market Sentiment

The dovish recalibration of Fed policy expectations has not only impacted USD/CAD but also influenced global asset classes.

• US Treasury yields declined as traders priced in easier monetary conditions.
• Equity markets received support from the prospect of lower borrowing costs, though gains were capped by lingering concerns about global growth.
• Commodity-linked currencies such as the Canadian Dollar and Australian Dollar benefited from the weaker USD, although their upside remains vulnerable to fluctuations in risk sentiment.

The broader narrative suggests that the US Dollar will remain under pressure unless upcoming US data challenge the market’s dovish bias.

Outlook

The near-term trajectory of USD/CAD hinges on a delicate balance between US macroeconomic releases and Canadian GDP figures. Powell’s dovish tilt has already tilted sentiment against the USD, and any additional confirmation from weak US economic indicators would likely drive the pair lower.

Conversely, a stronger PCE inflation print or robust Durable Goods Orders could stabilize the Greenback and limit USD/CAD’s downside.

For the Canadian Dollar, this week’s GDP release is a key determinant. If growth outpaces expectations, the Loonie could extend gains, pushing USD/CAD towards lower support levels. However, if the data disappoint, it could neutralize CAD’s advantage and allow the pair to rebound.

Conclusion

The USD/CAD pair begins the week constrained by shifting policy dynamics and heightened data sensitivity. Powell’s dovish remarks at Jackson Hole have cast a long shadow over the US Dollar, triggering a repricing of rate cut probabilities and setting the stage for volatile trading ahead.

With critical US data releases and Canada’s GDP figures on the horizon, traders should brace for increased fluctuations in the Loonie pair. For now, USD/CAD remains on the defensive, struggling to gain a firm footing as markets digest the Fed’s evolving policy stance.