Expectations of double rate cuts from the Federal Reserve and the Bank of Canada are suppressing USD/CAD, with the market awaiting stabilization.
2025-10-28 11:16:38
USD/CAD continued its decline to around 1.3990 during Asian trading on Tuesday, remaining under pressure for the second consecutive trading day. The dollar's weakness was mainly driven by market expectations of an imminent Federal Reserve rate cut, while the Canadian dollar was affected by the dual impact of weak oil prices and escalating trade frictions.
The market highly expects the Federal Reserve to cut interest rates by 25 basis points at its October meeting, lowering the benchmark rate range to 3.75%-4.00%. CME FedWatch data shows that investors are pricing in a 97% probability of an October rate cut, and are further betting on a 95% chance of another rate cut in December.
Meanwhile, the risk of a US government shutdown has sparked disagreements within the Federal Reserve over its policy path. Some officials advocate for a quick rate cut to support the sluggish job market, while others worry that inflation remains above the 2% target and that it is inappropriate to ease policy too quickly.
"The market has almost fully priced in a synchronized easing by the Fed and the Bank of Canada, but the recent decline in oil prices has weakened the Canadian dollar's resilience," said Alan Reid, a foreign exchange strategist at Bloomberg.
Oil prices fell for the third consecutive day as OPEC+ plans to increase production again in December, raising concerns about a return of global oversupply. As the largest source of crude oil imports for the United States, Canada's economy is highly dependent on energy exports, putting significant pressure on the Canadian dollar during the downward cycle of oil prices.
Canada is also facing a new round of trade challenges from the U.S. President Trump announced on Saturday that he would impose an additional 10% tariff on Canadian goods in response to Ontario's "unfair promotion" in a World Series ad.
Analysts predict that this move will hit confidence in Canadian manufacturing and export investment, and increase pressure on the Bank of Canada to ease its monetary policy in the future. The market generally expects the Bank of Canada (BoC) to cut interest rates by 25 basis points on Wednesday to hedge against the risks of trade and economic slowdown.
From a technical perspective, USD/CAD maintains a short-term downward channel structure. If the price continues to be under pressure below the psychological level of 1.4000, the next target may be the support area of 1.3950 and 1.3900. If it falls below 1.3900, it may further test the vicinity of 1.3850.
The upper resistance level is located between 1.4030 and 1.4080. A break above this range will open up upside potential to 1.4120. The MACD death cross has widened, and the RSI has fallen below the 50 axis, indicating that the bearish momentum is dominant and the short-term trend is weak.
Editor's opinion:
The USD/CAD exchange rate is currently at a critical juncture between monetary policy expectations and energy prices. The near-synchronized policy pace of the Federal Reserve and the Bank of Canada has reduced the exchange rate's sensitivity to interest rate differentials, while oil prices and trade policy have become the dominant drivers.
If oil prices continue to come under pressure and tariffs remain unresolved, the Canadian dollar may struggle to maintain its strength. USD/CAD is expected to fluctuate between 1.3900 and 1.4050 in the short term. Focus will be on the wording of the two major central bank meetings this week and the crude oil market.
The market highly expects the Federal Reserve to cut interest rates by 25 basis points at its October meeting, lowering the benchmark rate range to 3.75%-4.00%. CME FedWatch data shows that investors are pricing in a 97% probability of an October rate cut, and are further betting on a 95% chance of another rate cut in December.
Meanwhile, the risk of a US government shutdown has sparked disagreements within the Federal Reserve over its policy path. Some officials advocate for a quick rate cut to support the sluggish job market, while others worry that inflation remains above the 2% target and that it is inappropriate to ease policy too quickly.
"The market has almost fully priced in a synchronized easing by the Fed and the Bank of Canada, but the recent decline in oil prices has weakened the Canadian dollar's resilience," said Alan Reid, a foreign exchange strategist at Bloomberg.
Oil prices fell for the third consecutive day as OPEC+ plans to increase production again in December, raising concerns about a return of global oversupply. As the largest source of crude oil imports for the United States, Canada's economy is highly dependent on energy exports, putting significant pressure on the Canadian dollar during the downward cycle of oil prices.
Canada is also facing a new round of trade challenges from the U.S. President Trump announced on Saturday that he would impose an additional 10% tariff on Canadian goods in response to Ontario's "unfair promotion" in a World Series ad.
Analysts predict that this move will hit confidence in Canadian manufacturing and export investment, and increase pressure on the Bank of Canada to ease its monetary policy in the future. The market generally expects the Bank of Canada (BoC) to cut interest rates by 25 basis points on Wednesday to hedge against the risks of trade and economic slowdown.
From a technical perspective, USD/CAD maintains a short-term downward channel structure. If the price continues to be under pressure below the psychological level of 1.4000, the next target may be the support area of 1.3950 and 1.3900. If it falls below 1.3900, it may further test the vicinity of 1.3850.
The upper resistance level is located between 1.4030 and 1.4080. A break above this range will open up upside potential to 1.4120. The MACD death cross has widened, and the RSI has fallen below the 50 axis, indicating that the bearish momentum is dominant and the short-term trend is weak.
Editor's opinion:
The USD/CAD exchange rate is currently at a critical juncture between monetary policy expectations and energy prices. The near-synchronized policy pace of the Federal Reserve and the Bank of Canada has reduced the exchange rate's sensitivity to interest rate differentials, while oil prices and trade policy have become the dominant drivers.
If oil prices continue to come under pressure and tariffs remain unresolved, the Canadian dollar may struggle to maintain its strength. USD/CAD is expected to fluctuate between 1.3900 and 1.4050 in the short term. Focus will be on the wording of the two major central bank meetings this week and the crude oil market.
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