The USD/CAD pair extended its recent weakness in Monday’s Asian session, trading near 1.3820 after a sharp 0.8% decline on Friday. The pair continues to face headwinds following remarks from Federal Reserve Chair Jerome Powell at the Jackson Hole Symposium, where he hinted at a possible shift toward policy easing amid growing labor market vulnerabilities.
Despite a modest uptick in the US Dollar Index (DXY), which edged slightly higher early Monday, the index remains near a four-week low, hovering just below the 98.00 threshold. The Greenback’s broader softness reflects a shift in sentiment following Powell’s acknowledgment that the Fed may need to recalibrate its policy stance.
Powell’s Message: Balancing Inflation With Employment Risks
Speaking on Friday, Powell noted, “With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” He emphasized that while inflation pressures persist, the downside risks to employment have become more pronounced—signaling a potential opening for rate cuts in the near term.
According to the CME FedWatch tool, markets are now pricing in an 87% probability of a 25 basis-point rate cut at the Fed’s September policy meeting—up sharply from earlier estimates prior to Powell’s comments. The dovish tone from the Fed Chair has weighed on USD demand and offered support to the Canadian Dollar.
Data-Driven Week Ahead for USD/CAD
Market attention now turns to a busy week of economic data releases that could shape near-term direction for USD/CAD. From the US side, key focus will be on July’s Durable Goods Orders and the Personal Consumption Expenditures (PCE) Price Index—the Fed’s preferred measure of inflation.
Meanwhile, Canadian traders will be closely watching Friday’s release of June and Q2 Gross Domestic Product (GDP) data. The Canadian economy is projected to have grown by 0.1% in June, partially reversing the 0.1% contraction recorded in May. Stronger-than-expected figures could further bolster the Loonie, especially in the context of a more cautious Fed.
With both nations’ macroeconomic landscapes in flux, the USD/CAD pair may remain sensitive to incoming data and central bank signals, particularly as investors recalibrate their expectations for the next round of monetary policy adjustments.
