- The USD/CAD outlook remains slightly negative despite a looming BOC rate cut.
- The US government shutdown poses a significant risk for dollar depreciation.
- Markets now closely watch the JOLTS job openings report, along with the Fed’s speech, for further guidance.
The USD/CAD outlook remains steady above 1.3900 on Tuesday, following a softer start to the week amid mixed domestic data and expectations for the Bank of Canada’s policy. Although the pair remains underpinned due to broad dollar flows, the looming risk of a potential US government shutdown, along with Canada’s upbeat GDP and stability around tariffs, offers the loonie a degree of resilience.
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According to Statistics Canada, a 0.2% expansion in July shows the first sign of growth in the last four months. Goods-producing industries, including durable manufacturing and oil and gas, contributed to the gains, while the services sector continued to lag. Yet the momentum could be short-lived, as early August estimates showed no growth with weakening signs in the mining, energy, and transport sectors. Economists warn that Canada’s Q3 performance still risks underperforming compared to the BOC’s projections.
The Bank of Canada cut its policy rate by 25 basis points to 2.5% earlier in September, marking its first easing since March, while markets are convinced of another cut in October as well. According to TD Bank economists, two additional rate cuts are needed to offset weak investment and a soft labor market. Meanwhile, slower inflation over the past three months has given policymakers room to act without pressure.
On the other hand, the US dollar remains subdued due to ongoing political wrangling in Washington, which raises the odds of a potential US government shutdown that could delay the release of US data. Although past shutdowns have had a limited economic impact, this one could erode dollar sentiment, as the Fed is already prepared for more cuts this year.
USD/CAD Key Events Ahead
The significant event scheduled for today is the JOLTS job opening data from the US, especially since the ADP and NFP data may be delayed due to a potential government shutdown. Moreover, Fed’s Goolsbee will deliver a speech that can provide insights into the Fed’s next step.
USD/CAD Technical Outlook: Bulls Lacking Follow-through Momentum
The USD/CAD formed a top at 1.3960 on Friday, consolidating under the 20-period MA around 1.3900. The pair lacks bullish conviction after forming a peak, looking for more cues to initiate a bearish trend. The next key support for the pair emerges at 1.3860 around the 50-period MA ahead of the 100- and 200-period MA confluence around 1.3830.
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On the upside, the pair could test the 1.3960 top if the price recaptures the 20-period MA. The next resistance could be the May highs near 1.4020.
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