The Canadian Dollar is trading flat against the US Dollar as it consolidates recent losses incurred after the Federal Reserve’s announcement. This week has seen yield spreads widen against the CAD, driven by a reassessment of the central bank’s policy outlook and expectations regarding Federal Reserve actions.

The Bank of Canada’s Financial Stability Report, released Thursday, pointed to various risks, such as the effects of trade tensions on Canadian banks and consumers. Other concerns include the implications of upcoming mortgage renewals in a high-rate environment and the rising role of hedge funds in the Canadian government bond market.

Domestic Jobs Report Focus

Attention is turning to Friday’s domestic jobs report, predicting a 5,000 increase in jobs and a slight rise in unemployment. The USD/CAD pair has broken its long-held range, facing resistance near the 1.39 level, around the 61.8% retracement of its prior rally.

Market momentum is neutral, with the Relative Strength Index just under 50. Continued gains may encounter resistance at the 1.40 psychological level, with support expected between 1.3880 and 1.3850.

The data above lays out a quiet but loaded moment for those watching the Canadian Dollar. Price movement has stalled somewhat, squeezing near technical barriers. That’s usually a signal worth watching, especially when it coincides with a build-up of broader market hesitation.

Shifting Policy Expectations

In simple terms, we’ve just seen policy expectations shift in favour of the US side. Interest rate differentials—how much more the US pays on money vs Canada—are widening again. This isn’t exactly new, but it’s moved fast enough to send a message. Think of it like a slow tide leaning south: not rushing, but steady. Traders should pay close attention when the flows and forward expectations lean together like this. It’s not always clean, but when rates move, currencies tend to follow.

The Bank of Canada’s report added some colour to this broader picture. Not directly market-moving in a headline-grabbing sense, but layered with caution around credit and leverage. Mortgage pressures are building under the surface, especially as higher refinancing costs work their way through the household sector. Add in concerns around hedge funds becoming more active in sovereign debt markets, and it starts to become clearer why there’s a sensitivity around yields.

Now, when statistics come into play—like the domestic employment data due Friday—the reactions can be sharp. A forecast of 5,000 jobs being added does not suggest a tight market. Even the slight increase in unemployment being mentioned flags the possibility that Canada may not be immune to the softness we’re seeing creep into other developed markets. Ahead of that release, there’s little fresh fuel for optimism. That doesn’t make the currency directionless, just more responsive to surprises.

Technicals agree: USD/CAD broke above an old range it was confined in for some time. That sparked renewed attention. The resistance near 1.39 matches a historical retracement level from earlier rallies. It’s where older money had paused before. When prices return to these spots, they often do so with intent. If you’re watching from a momentum angle, RSI floating under 50 suggests the energy is neither strongly with buyers nor sellers, so entries should be more selective, ideally aligning with data or decision points.

We expect traders to keep one eye firmly planted at the 1.40 mark—not because it’s magical, but because it’s a round number that traders like to lean against. If breached convincingly, it would shake loose a lot of defensive positioning. On the flip side, dips into the 1.3880–1.3850 corridor might bring in two-way interest, as some try building early exposure on pullbacks, especially with implied volatility relatively tame.

So, over the coming sessions, look less at the headlines and more at how price reacts around those technical levels in combination with unexpected data releases. Staying nimble remains valuable here, especially if yields continue diverging and economic prints drift from forecasts.

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