The USD/CAD pair has climbed to almost 1.3755, extending its upward trend for the fourth consecutive trading day. The Loonie’s rise is due to the US Dollar strengthening after a tariff deal between the US and the EU during the weekend.
The US Dollar Index has increased to nearly 99.00, its highest in a month. This boost follows the US-EU deal which lifted the US Dollar as the reciprocal tariffs were less severe than anticipated.
Monetary Policy Announcements
Market participants are awaiting the Federal Reserve and the Bank of Canada’s monetary policy announcements set for Wednesday. Both banks are predicted to maintain their current interest rates.
Today’s focus is on the US JOLTS Job Openings data for June, anticipated to show 7.55 million openings, down from 7.77 million in May. This data is vital for gauging job market conditions in the US.
The Bank of Canada announces its interest rate decisions up to eight times a year, which can influence foreign investment flows into Canada. The next announcement is scheduled for July 30, 2025, with a consensus rate of 2.75%, unchanged from the previous rate.
With the USD/CAD exchange rate nearing 1.3755, we are seeing continued strength in the US Dollar. This momentum comes after a weekend trade agreement between the United States and the European Union avoided the harshest tariff scenarios. The US Dollar Index has now pushed to a monthly high around the 99.00 level.
Economic Divergence
Both the Federal Reserve and the Bank of Canada are poised to announce their monetary policy decisions this Wednesday, with consensus showing both will hold rates steady. However, recent data suggests a divergence in economic health that supports a stronger American currency. US core inflation has remained persistent above 3%, while recent Canadian figures show inflation has cooled to 2.6%.
Today’s focus is the US JOLTS Job Openings report, which is expected to show a slight cooling in the labor market. While the figure is anticipated to drop, a reading around 7.55 million still represents a historically tight job market, far stronger than pre-2021 levels. This underlying strength contrasts with signs of a slower Canadian economy, where Q2 growth has been revised lower.
Given this backdrop of upward momentum and favorable economic data, we believe derivative traders should position for further gains in the currency pair. Buying August or September call options with a strike price around 1.3800 could be a strategic way to capitalize on a potential move higher. This approach allows traders to participate in the upside while defining their maximum risk.
The key risk is a surprise from either central bank meeting this week. A surprisingly hawkish tone from officials in Ottawa or an unexpectedly dovish message from Washington could quickly reverse the current trend. Historically, the 1.3800-1.3850 zone has acted as significant resistance for the pair over the last two years.
Should the rate break decisively above that historical ceiling following the policy announcements, it could trigger a new wave of buying. Such a breakout would open the door for a move toward the 1.3900 level in the weeks ahead. We will be watching the central bank rhetoric closely for any change in tone.
