USD/CAD traded flat around 1.3800 in early European hours on Friday, with the pair consolidating after recent volatility. The US Dollar (USD) found support from the Federal Reserve’s (Fed) less dovish-than-expected guidance, while investors awaited Canada’s July Retail Sales data due later in the day for fresh direction.
Fed signals cautious easing
At its September meeting, the Fed delivered a 25 basis point (bps) rate cut—its first this year—bringing the target range to 4.0%–4.25%. Policymakers also projected two additional cuts before year-end. Chair Jerome Powell described the move as a “risk management” cut, stressing that there was no urgency to accelerate easing. The cautious tone helped stabilize the Greenback in recent sessions.
BoC policy divergence weighs on CAD
In contrast, the Bank of Canada (BoC) surprised markets on Wednesday by cutting its key rate to 2.5%, the lowest in three years, and leaving the door open for further easing. The divergence between the BoC’s dovish stance and the Fed’s measured approach has limited upside for the Canadian Dollar (CAD), creating room for USD/CAD to hold above the 1.3800 handle.
Oil prices may support loonie
Meanwhile, higher crude oil prices offered some support for the commodity-linked Loonie. Canada remains the largest oil exporter to the US, and stronger energy prices typically bolster CAD demand. Any sustained rally in oil could cap USD/CAD’s upside in the near term.
