USD/CAD Bulls Hold Ground as Markets Price 92% Fed Hike Chance

Summary:

USD/CAD holds around 1.3900 as a 92% probability of a Fed hike supports the Dollar. Surging oil prices are cushioning the Canadian Dollar, but softer Canadian data and expectations for a steady BoC keep the broader bias tilted toward USD strength.

Buy USDCAD

End Time

CLOSED

1.39202

ENTRY

1.41300

TGT

1.38200

1.39943 +0.00056 +0.04%

141

Points

Profit

1.38200

1.39343

CLOSING

1.39202

ENTRY

1.41300

TGT

USD/CAD remains elevated around 1.3900 on Tuesday, leaving the Canadian Dollar close to its weakest levels of the month as markets position for Wednesday’s Federal Reserve decision. The pair has advanced for four consecutive sessions, driven largely by growing conviction that US policymakers are preparing to tighten monetary policy.

Attention is firmly on the two-day FOMC meeting, with markets expecting the Fed to deliver its first interest rate increase in three years. Futures currently imply around a 92% probability of a 25-basis-point hike, reflecting a sharp shift in expectations following stronger US employment figures and persistent inflation pressures.

The possibility that Wednesday’s move may not be the final hike of the year is providing additional support to the Greenback. Markets are increasingly considering another increase later in the year, potentially in December, widening the expected policy gap between the Fed and the Bank of Canada.

The Canadian Dollar, however, is receiving an important cushion from surging energy prices. Brent crude is trading near $104.35, having gained roughly 22% from its late-August lows, while WTI remains just below the $100 threshold. As Canada is a major oil exporter, the sharp increase in crude prices is helping limit the extent of CAD weakness and preventing an even stronger USD/CAD advance.

That support comes despite disappointing domestic data. Canadian CPI declined 0.1% month-on-month in August, compared with expectations for an unchanged reading and July’s 0.5% increase. Annual inflation nevertheless remained at 3.0%, matching forecasts. Manufacturing Sales also contracted 0.4%, twice the 0.2% decline anticipated by markets.

The softer domestic figures strengthen the argument for the Bank of Canada to remain on hold, particularly as policymakers balance inflation risks against weaker activity and continued uncertainty surrounding trade relations with the United States.

This leaves USD/CAD caught between two competing forces. Fed tightening expectations favor further US Dollar strength, while elevated crude prices continue to provide fundamental support for the Loonie. For now, the monetary-policy divergence appears to be carrying greater weight, keeping USD/CAD supported near 1.3900 ahead of Wednesday’s decision.

Technical Analysis

USD/CAD is beginning to show a notable change in direction on the 4-hour chart after spending much of the past several months under sustained selling pressure. The recovery from the 1.3740–1.3760 region has developed into a stronger reversal attempt, with buyers now pushing the pair toward 1.3920.

A key feature supporting the recovery is the double bottom formed around 1.3740. Two separate attempts to extend beneath this demand area were rejected, suggesting that bearish pressure was losing momentum around the lows. The second rejection subsequently produced a considerably stronger advance, allowing the pair to establish a series of higher lows.

USD/CAD has now also moved through the descending trendline that had capped rallies since July. Breaking this trendline changes the complexion of the chart and suggests the longer-running bearish structure is beginning to unwind.

The immediate test is the 1.3890–1.3920 area, where price is currently attempting to establish itself above previous resistance. A brief retreat from this region would remain consistent with the bullish setup. In fact, a pullback toward 1.3880–1.3900 followed by renewed buying could confirm that former resistance has successfully turned into support.

Beyond the current barrier, a firm move above 1.3940 would give buyers greater control and create room for a more substantial recovery. The next major destination on the chart sits around 1.4120–1.4140, an area that previously played an important role in the broader decline.

The setup therefore favors buying a controlled pullback rather than chasing the initial breakout. As long as USD/CAD remains above the broken trendline and maintains the developing higher-low structure, the path of least resistance is shifting toward the upside.

A return beneath 1.3840 would raise questions about the strength of the breakout, while a deeper move back through 1.3740–1.3760 would undermine the reversal structure altogether.

Overall, the combination of a defended double bottom, improving price structure and a break through the long-standing descending trendline points toward a bullish continuation after a possible short-term retest, with the 1.4130 region emerging as the larger upside objective.

TRADE RECOMMENDATION

BUY USD/CAD

ENTRY PRICE: 1.3920

STOP LOSS: 1.3820

TAKE PROFIT: 1.4130

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Warren Takunda

Analysts

Warren Takunda, a seasoned finance leader specializing in the Middle East, is a trusted senior analyst with a proven track record. As head of the finance team, he excels in financial planning, analysis, and reporting. Warren's expertise in financial modeling and investment analysis delivers valuable insights to clients.

Rank

Articless

3006

Win Rate

63.66%

P/L Ratio

0.74

Focus on

XAUUSD, EURUSD, GBPUSD

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