The USDCAD pair has reacted to recent economic data. The USD was sold off after a softer than expected NFP report, which showed the market anticipated 60 bps of easing by year-end, instead of the prior 35 bps. <\/p>\n
Fed officials suggested a September rate cut, with expectations increasing among traders. The ISM Services PMI’s new high in prices has kept traders cautious before the upcoming US CPI release. The US Jobless Claims data, alongside the Canadian employment report, are awaited for further clues on economic conditions.<\/p>\n
In Canada, underlying inflation is around the top end of the target range, with improvements in data, including a strong employment report. The BoC maintained interest rates but left room for potential adjustments based on economic growth. Markets foresee 18 bps of easing in Canada by year’s end.<\/p>\n
On the daily chart, USDCAD has rejected the 1.3860 level, consolidating at lower levels as traders wait for new data. The 4-hour chart shows consolidation between 1.3760 and 1.3815, with buyers targeting the upper bound and sellers aiming for a fall to 1.37. Meanwhile, the 1-hour chart shows similar buying and selling interests within the range.<\/p>\n
The US dollar sold off after last week’s softer Non-Farm Payrolls report, which showed a gain of just 155,000 jobs. This quickly changed our view on the Federal Reserve’s path. We’ve seen a dramatic repricing for a rate cut as soon as September, with Fed funds futures now pricing in a near 90% probability.<\/p>\n
On the other side, the Canadian economy appears more resilient. We saw this with July’s CPI data in Canada, which held firm at 2.9%, keeping core inflation stubbornly high near the top of the Bank of Canada’s target range. This followed a robust Canadian jobs report last month that added 45,000 positions, crushing expectations.<\/p>\n
This divergence suggests downward pressure on the USDCAD pair. The rejection from the key 1.3860 level last week was significant, and we expect sellers to view any return to that area as an opportunity. A break below the recent lows would open the door for a move towards the 1.3500 handle in the coming weeks.<\/p>\n
For derivative traders, this outlook makes buying put options attractive, especially with strike prices below the current consolidation range, like 1.3700 or 1.3650. Another strategy would be to sell call spreads with the short leg around the 1.3860 resistance level. This would benefit from both a drop in price and time decay if the pair remains stuck.<\/p>\n
The main risk to this view is next week’s US Consumer Price Index (CPI) report. The recent ISM Services PMI showed a worrying jump in its prices paid index to its highest level this year. A hot inflation print could erase expectations for a September cut and send USDCAD sharply higher.<\/p>\n
We saw a similar rapid shift back in late 2023 when the market aggressively priced in Fed cuts, only to pare back some of those expectations early in 2024. This highlights how quickly sentiment can turn on a single data point. Traders should remain nimble and aware that the current narrative is fragile.<\/p>\n
In the immediate term, USDCAD is stuck in a tight range between 1.3760 and 1.3815. Tomorrow’s US Jobless Claims and Friday’s Canadian employment report will be the next catalysts. A weak US number combined with a strong Canadian report could be what finally breaks the pair out of this consolidation to the downside.<\/p>\n
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