Expectations of a 50 basis point rate cut by the Federal Reserve in September have increased, pushing the USD/CAD lower for three consecutive days.
2025-08-14 13:19:06
USD/CAD remained under pressure on Thursday, trading around 1.3760 in Asian trading, marking its third consecutive day of decline. Growing expectations of further interest rate cuts by the Federal Reserve dampened demand for the US dollar.
The CME FedWatch tool shows that the market expects the probability of the Federal Reserve cutting interest rates by 25 basis points at its September meeting to be close to 94%, and some investors are betting on more substantial easing measures.
In an interview on Wednesday, U.S. Treasury Secretary Bessent said short-term interest rates should be 1.5 to 1.75 percentage points lower than the current effective rate of 4.33%, and that the Federal Reserve is likely to cut rates by 50 basis points in September. U.S. President Trump has also expressed his desire for a rate cut, saying it should be at or near 1%, or even three to four percentage points lower.
The commodity-linked Canadian dollar found support, primarily thanks to stabilizing oil prices. As the largest supplier of crude oil to the United States, Canada's economy is highly sensitive to oil price fluctuations. West Texas Intermediate (WTI) crude oil rebounded to around $62.20 after hitting a two-month low of $61.35, extending gains from the previous day.
Market analysis points out that the geopolitical risk premium ahead of the upcoming meeting between the leaders of the United States and Russia is an important driving force behind the rebound in oil prices.
Before the meeting, Trump warned Putin that if he refused to end the conflict in Ukraine, there would be "very serious consequences." This statement not only boosted the risk premium in the oil market, but also indirectly provided support for the Canadian dollar.
From the daily trend, USD/CAD has found initial support around 1.3750 after a continuous decline, which is also close to the 50-day moving average. If the exchange rate falls below 1.3750, it may further decline to the support areas of 1.3700 and 1.3660.
On the other hand, if it breaks back above 1.3800 and holds, it could potentially test 1.3850 or even 1.3900. The MACD indicator is above zero, but the momentum bar is shrinking, while the RSI has dipped slightly back into neutral territory, suggesting a more balanced bullish and bearish outlook. A breakout driven by fundamentals is warranted.
Editor's Note: The short-term USD/CAD trend is currently driven primarily by expectations of Federal Reserve policy and oil price fluctuations. If the Fed cuts interest rates more than expected in September and oil prices continue to rebound, the Canadian dollar is expected to continue to strengthen. However, if the US-Russia talks collapse, leading to increased risk aversion in the market, the US dollar could rebound.
The CME FedWatch tool shows that the market expects the probability of the Federal Reserve cutting interest rates by 25 basis points at its September meeting to be close to 94%, and some investors are betting on more substantial easing measures.
In an interview on Wednesday, U.S. Treasury Secretary Bessent said short-term interest rates should be 1.5 to 1.75 percentage points lower than the current effective rate of 4.33%, and that the Federal Reserve is likely to cut rates by 50 basis points in September. U.S. President Trump has also expressed his desire for a rate cut, saying it should be at or near 1%, or even three to four percentage points lower.
The commodity-linked Canadian dollar found support, primarily thanks to stabilizing oil prices. As the largest supplier of crude oil to the United States, Canada's economy is highly sensitive to oil price fluctuations. West Texas Intermediate (WTI) crude oil rebounded to around $62.20 after hitting a two-month low of $61.35, extending gains from the previous day.
Market analysis points out that the geopolitical risk premium ahead of the upcoming meeting between the leaders of the United States and Russia is an important driving force behind the rebound in oil prices.
Before the meeting, Trump warned Putin that if he refused to end the conflict in Ukraine, there would be "very serious consequences." This statement not only boosted the risk premium in the oil market, but also indirectly provided support for the Canadian dollar.
From the daily trend, USD/CAD has found initial support around 1.3750 after a continuous decline, which is also close to the 50-day moving average. If the exchange rate falls below 1.3750, it may further decline to the support areas of 1.3700 and 1.3660.
On the other hand, if it breaks back above 1.3800 and holds, it could potentially test 1.3850 or even 1.3900. The MACD indicator is above zero, but the momentum bar is shrinking, while the RSI has dipped slightly back into neutral territory, suggesting a more balanced bullish and bearish outlook. A breakout driven by fundamentals is warranted.
Editor's Note: The short-term USD/CAD trend is currently driven primarily by expectations of Federal Reserve policy and oil price fluctuations. If the Fed cuts interest rates more than expected in September and oil prices continue to rebound, the Canadian dollar is expected to continue to strengthen. However, if the US-Russia talks collapse, leading to increased risk aversion in the market, the US dollar could rebound.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
