USD/CAD exchange rate analysis: Canadian dollar weakens after Powell's speech
2025-09-24 19:12:59
The USD/CAD exchange rate has risen for two consecutive trading days, with a short-term gain of approximately 0.5%, and further strengthened after Federal Reserve Chairman Jerome Powell's speech. While buying pressure on the US dollar has stabilized, it is still insufficient to establish a clear trend. Against this backdrop, the market remains volatile and consolidating, lacking a clear short-term direction.
What are the latest developments from the Federal Reserve?
Today, Powell emphasized that the Federal Reserve is facing a delicate balance between continued inflation and a weak labor market - the U.S. labor market has begun to show signs of slowing down in recent months.
He stressed that the new round of interest rate cuts cannot be carried out too quickly, otherwise it may trigger inflationary pressure again. At the same time, he also emphasized that the Fed's short-term goal is to maintain the recovery of the job market.
Markets interpreted these comments as a signal that the Fed would refrain from overly aggressive interest rate cuts. This signal provided a brief boost to the US dollar, which had been in a downward trend for much of 2025. Indeed, the US Dollar Index (DXY) has halted its recent decline and is currently trading above 97, reflecting a moderate recovery in the greenback in recent trading sessions.
As a result, the rebound in sentiment towards the US dollar could lead to further weakness in the Canadian dollar in the short term. However, this trend appears to be temporary, especially following the interest rate decisions of both the Federal Reserve and the Bank of Canada last week. If the Fed continues its steady rate-cutting cycle and the Bank of Canada does not confirm further rate cuts this year, the selling pressure that has previously dominated the USD/CAD exchange rate (i.e., downward pressure on the US dollar and upward pressure on the Canadian dollar) may re-emerge in the medium term—especially given the lack of a clear direction for the currency pair.
Are there any new initiatives in Canada?
On September 18, the Canadian Prime Minister held talks with the Mexican President. Ahead of the scheduled 2026 review of the United States-Mexico-Canada Agreement (USMCA), the two countries agreed to deepen cooperation in trade and security. During the talks, Canada discussed its intention to expand bilateral trade with Mexico, which reached nearly $56 billion in 2024 and is expected to grow further in the coming years.
These measures are part of Canada's efforts to diversify its economic policies and address the potential pressures on its economy from trade relations with the U.S. At the same time, the Canadian government remains committed to its "Buy Canadian" policy, which aims to boost domestic production and consumption to mitigate potential risks to economic growth.
Against this backdrop, Canada is currently implementing a series of measures aimed at diversifying its economy and reducing its dependence on the US economy. If these efforts are successful, they are expected to stabilize market confidence in the Canadian dollar and enhance its attractiveness as an investment asset. In this scenario, the USD/CAD exchange rate could face renewed selling pressure (i.e., a decline in the US dollar and a rise in the Canadian dollar), which will be a key factor influencing the pair's performance in the coming trading sessions.
USD/CAD technical analysis
(Source of USD/CAD daily chart: Yihuitong)
Short-term fluctuation range
Since late July, the USD/CAD exchange rate has been confined in a sideways range, with resistance at 1.3924 and support at 1.3735. Recent exchange rate fluctuations have been insufficient to break out of this congestion pattern, and the range remains a key short-term technical indicator. As long as the exchange rate remains within this range, the market is likely to continue its consolidation phase.
Relative Strength Index (RSI)
The Relative Strength Index (RSI) continues to rise above the neutral 50 level, which indicates that the average buying momentum over the past 14 trading days has strengthened. If this trend continues, it may further strengthen the short-term bullish bias.
Moving Average Convergence Divergence (MACD)
The MACD histogram is fluctuating around the neutral zero line, which indicates that the short-term moving average is in a state of consolidation. Unless a clearer directional signal emerges, the exchange rate is likely to continue to fluctuate sideways.
Key points
1.3735 – Key support: This level coincides with the recent low and the Ichimoku Cloud. If the exchange rate falls below this support level, the bearish trend of recent weeks (i.e., USD decline and CAD rise) may resume.
1.3924 – immediate resistance: This level is the recent high. If the exchange rate breaks through this resistance level, it will break out of the current sideways range and open up space for a stronger bullish trend.
1.4000 – Key resistance: This level coincides with the 200-period simple moving average and the 38.2% Fibonacci retracement level, making it a key level for determining the potential for continued gains. A sustained break above this level could confirm the formation of a stronger uptrend.
What are the latest developments from the Federal Reserve?
Today, Powell emphasized that the Federal Reserve is facing a delicate balance between continued inflation and a weak labor market - the U.S. labor market has begun to show signs of slowing down in recent months.
He stressed that the new round of interest rate cuts cannot be carried out too quickly, otherwise it may trigger inflationary pressure again. At the same time, he also emphasized that the Fed's short-term goal is to maintain the recovery of the job market.
Markets interpreted these comments as a signal that the Fed would refrain from overly aggressive interest rate cuts. This signal provided a brief boost to the US dollar, which had been in a downward trend for much of 2025. Indeed, the US Dollar Index (DXY) has halted its recent decline and is currently trading above 97, reflecting a moderate recovery in the greenback in recent trading sessions.
As a result, the rebound in sentiment towards the US dollar could lead to further weakness in the Canadian dollar in the short term. However, this trend appears to be temporary, especially following the interest rate decisions of both the Federal Reserve and the Bank of Canada last week. If the Fed continues its steady rate-cutting cycle and the Bank of Canada does not confirm further rate cuts this year, the selling pressure that has previously dominated the USD/CAD exchange rate (i.e., downward pressure on the US dollar and upward pressure on the Canadian dollar) may re-emerge in the medium term—especially given the lack of a clear direction for the currency pair.
Are there any new initiatives in Canada?
On September 18, the Canadian Prime Minister held talks with the Mexican President. Ahead of the scheduled 2026 review of the United States-Mexico-Canada Agreement (USMCA), the two countries agreed to deepen cooperation in trade and security. During the talks, Canada discussed its intention to expand bilateral trade with Mexico, which reached nearly $56 billion in 2024 and is expected to grow further in the coming years.
These measures are part of Canada's efforts to diversify its economic policies and address the potential pressures on its economy from trade relations with the U.S. At the same time, the Canadian government remains committed to its "Buy Canadian" policy, which aims to boost domestic production and consumption to mitigate potential risks to economic growth.
Against this backdrop, Canada is currently implementing a series of measures aimed at diversifying its economy and reducing its dependence on the US economy. If these efforts are successful, they are expected to stabilize market confidence in the Canadian dollar and enhance its attractiveness as an investment asset. In this scenario, the USD/CAD exchange rate could face renewed selling pressure (i.e., a decline in the US dollar and a rise in the Canadian dollar), which will be a key factor influencing the pair's performance in the coming trading sessions.
USD/CAD technical analysis
(Source of USD/CAD daily chart: Yihuitong)
Short-term fluctuation range
Since late July, the USD/CAD exchange rate has been confined in a sideways range, with resistance at 1.3924 and support at 1.3735. Recent exchange rate fluctuations have been insufficient to break out of this congestion pattern, and the range remains a key short-term technical indicator. As long as the exchange rate remains within this range, the market is likely to continue its consolidation phase.
Relative Strength Index (RSI)
The Relative Strength Index (RSI) continues to rise above the neutral 50 level, which indicates that the average buying momentum over the past 14 trading days has strengthened. If this trend continues, it may further strengthen the short-term bullish bias.
Moving Average Convergence Divergence (MACD)
The MACD histogram is fluctuating around the neutral zero line, which indicates that the short-term moving average is in a state of consolidation. Unless a clearer directional signal emerges, the exchange rate is likely to continue to fluctuate sideways.
Key points
1.3735 – Key support: This level coincides with the recent low and the Ichimoku Cloud. If the exchange rate falls below this support level, the bearish trend of recent weeks (i.e., USD decline and CAD rise) may resume.
1.3924 – immediate resistance: This level is the recent high. If the exchange rate breaks through this resistance level, it will break out of the current sideways range and open up space for a stronger bullish trend.
1.4000 – Key resistance: This level coincides with the 200-period simple moving average and the 38.2% Fibonacci retracement level, making it a key level for determining the potential for continued gains. A sustained break above this level could confirm the formation of a stronger uptrend.
- 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.
