USD/CAD trades lower as the Canadian Dollar gains.
The US and Canada are close to reaching a deal before the tariff deadline.
Investors expect the Fed to leave policy rates unchanged again in September.
The Canadian Dollar (CAD) outperforms a majority of its currency peers on Friday, with the USD/CAD pair trading 0.32% lower at around 1.3888. The Canadian currency gains on hopes of a United States (US)-Canada interim deal.
A Canadian government source directly familiar with trade negotiations with the United States said on Thursday that talks were progressing well and Washington also wanted an agreement before a new US tariff deadline on August 19, Reuters reports.
Meanwhile, weakness in the US Dollar due to receding fears of a Federal Reserve (Fed) interest rate hike in the September meeting has also weighed on the Loonie pair. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.23% lower to near 99.70.
Fed patience holds as US inflation trend improves but remains above target
Analysts at Wells Fargo observe that “inflation remains elevated, but the trend is improving,” noting that “while inflation remains above target, the recent upturn appears narrow rather than broad-based.” Against this backdrop, they judge that “the Fed remains stuck on hold,” with policymakers reluctant to shift policy until they see clearer evidence that price pressures are durably contained.
Commerzbank’s Bernd Weidensteiner similarly highlights that the inflation data for July “indicated only moderate inflationary pressure; consumer prices excluding food and energy rose by 0.2% from the previous month, while the year-over-year rate fell slightly to 2.5%.” He adds that, although this outcome was broadly in line with expectations, “these figures, combined with the unexpectedly weak jobs data, eased the pressure on the Fed to raise its key interest rates anytime soon.” Together, the banks’ commentary underscores a picture of gradually improving but still above-target US inflation, reinforcing the case for the Fed to remain on hold for now.
USD/CAD Technical Analysis
USD/CAD trades lower at around 1.3888, keeping a bearish near‑term tone as spot holds under the 100‑day simple moving average (SMA) at 1.3920 and the 50.0% Fibonacci retracement at 1.3902. The pair has retreated from recent highs toward the middle of the prior upswing range, while the Relative Strength Index (14) at 29.95 slips into oversold territory, hinting that downside momentum is stretched but not yet reversed.
On the topside, immediate resistance is located at the 50.0% retracement of the latest move at 1.3902, followed by the 100‑day SMA at 1.3920; a sustained break above this band would ease the current bearish pressure and expose the 38.2% level at 1.3984 and then the 23.6% retracement at 1.4085. On the downside, initial support is seen at the 61.8% Fibonacci retracement at 1.3819, ahead of the 78.6% level at 1.3702, while deeper losses would bring the structural swing low region near the 100.0% retracement at 1.3553 into focus.
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