The Federal Reserve lowered the federal funds rate by 25 basis points to a range of 4.00%–4.25%, its first rate cut of the year. The central bank also signaled it expected to cut interest rates by an additional 50 basis points before the end of the year, slightly higher than its June forecast.

"There are signs of a slowdown in the job market, which is the main reason we are starting to cut interest rates," said Federal Reserve Chairman Powell.

Despite this, the Fed's latest median forecast shows that inflation will remain around 3% this year, significantly higher than the 2% target. This forecast has curbed market bets on more aggressive interest rate cuts and has become an important support for the strengthening of the US dollar.

The Bank of Canada also announced a 25 basis point interest rate cut, lowering its benchmark rate to 2.50%. In its latest monetary policy statement, the Bank of Canada emphasized that three factors have shifted the balance of risks since July: further weakening of the labor market; easing underlying inflationary pressures; and the removal of most of Canada's retaliatory tariffs, which has reduced the risk of upward inflation.

Against the backdrop of interest rate cuts from both central banks, USD/CAD continued its upward trend in the Asian session, trading around 1.3770. The US dollar benefited from strong inflation expectations and the Federal Reserve's dovish path of interest rate cuts, while the Canadian dollar came under pressure due to a weak domestic economy and a dovish policy stance.

Technically, the USD/CAD daily chart shows that the exchange rate has closed higher for two consecutive days and has steadily broken through the 1.3750 mark, currently trading around 1.3770. The moving average system has begun to turn upward, with the short-term 5-day moving average forming support for the 10-day moving average, indicating that upward momentum is accumulating.

In terms of indicators, the MACD fast line continues to diverge upward, the momentum column shows an amplifying trend, and the RSI hovers above 60 but has not yet entered the overbought zone, indicating that there is still room for bulls to extend. If the exchange rate can hold above 1.3780, the next target may be the 1.3850-1.3880 range;

On the contrary, if it falls below the 1.3720 support, it may retest the 1.3680 area. Overall, the daily chart structure is strong and the short-term trend tends to continue to rise.

Editor's opinion:

Currently, the US dollar is primarily supported by a complex combination of resilient US inflation and slowing employment, suggesting potential volatility in the Fed's subsequent policies. The Canadian dollar, on the other hand, is constrained by weakening domestic demand and limited policy space. USD/CAD is likely to remain relatively strong in the short term. If oil prices fail to sustainably rebound, the pressure on the Canadian dollar could intensify.