USD/CAD Forecast: Canadian Dollar Holds Support After First BoC Cut in 6 Months

Traders are viewing the BoC decision and press conference as (slightly) less dovish than expected, with the market-implied odds of another interest rate cut in October falling from 52% to 42% and USD/CAD holding in the mid-1.3700s.

USD/CAD, Bank of Canada Key Points

• As widely expected, the Bank of Canada cut interest rates by 25bps (0.25%) to 2.50%
• Traders are viewing the press conference as (slightly) less dovish than expected, with the market-implied odds of another interest rate cut in October falling from 52% to 42%.
• The key support level for USD/CAD traders to monitor is at 1.3725, with a more neutral bias appropriate above that level and a break below that level potentially setting the stage for a quick drop the mid- or lower-1.3600s.

No point in burying the lede: The Bank of Canada cut interest rates by 25bps (0.25%) to 2.50%, as widely expected. This is the first interest rate cut since March and extends the stop-and-go interest rate cutting cycle that the BOC kicked off last June.

In its accompanying monetary policy statement, the BOC made the following tweaks:

• Downgraded its assessment of the global economy, noting that its now showing signs of slowing under “sharply higher US tariffs and ongoing uncertainty.”
• Identified that “inflation has picked up in recent months as tariffs are being passed on to consumers.”
• Downgraded the performance of the Canadian economy, citing declining business investment, restrained household spending, increasing slack in the economy, and more broad declines in in employment along with easing wage growth
• Warned about the risks of tariffs driving uncertainty and raising inflationary risks for consumers

In his accompanying press conference, BOC Governor Tiff Macklem noted that there was a “clear consensus” to ease monetary policy. Within the committee, there was a “clear sense that the balance of risks had changed” but that the central bank is “not expecting a recession” and is instead forecasting 1% growth in H2.

On balance, traders are viewing the press conference as (slightly) less dovish than expected, with the market-implied odds of another interest rate cut in October falling from 52% to 42%, though ultimately economic data and trade policy will be the primary factor that tips the scales for the BOC.

Canadian Dollar Technical Analysis: USD/CAD Daily Chart

Source: StoneX, TradingView

In the wake of the as-expected BOC decision, USD/CAD has seen choppy, low volatility trade in the mid-1.3700s. The pair is carving out a potential head-and-shoulders top formation over the last 6 weeks, though the lack of a meaningful uptrend heading into the pattern may lessen its significance.

Regardless, the key support level for USD/CAD traders to monitor is at 1.3725, with a more neutral bias appropriate above that level and a break below that level potentially setting the stage for a quick drop to the mid- or lower-1.3600s.

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