18 September 2025,05:49
Daily Market Analysis
18 September 2025, 05:49
*The Bank of Canada cut its policy rate to 2.50%, the lowest in nearly three years, and signaled willingness to ease further if risks intensify.
*July factory sales delivered a 2.5% surprise gain, but broader growth momentum remains subdued.
*A sharp U.S. crude inventory drawdown offered some oil price support, though not enough to offset dovish monetary policy pressures.
The Canadian dollar weakened following the Bank of Canada’s decision to cut its benchmark rate by 25 basis points to 2.50%, marking the first easing move in six months and the lowest level in nearly three years. The central bank justified the shift by citing a deteriorating labor market, softer inflation pressures, and rising global economic risks, effectively signaling readiness to cut further if downside risks materialize. This dovish pivot has reduced the currency’s yield advantage and left the CAD vulnerable to capital outflows.
Beyond monetary policy, Canada’s economic backdrop remains mixed. July factory sales surprised to the upside with a 2.5% gain, but the broader growth trajectory is subdued, while energy markets add another layer of uncertainty. U.S. crude inventories registered a sharp drawdown, providing some support for oil prices which is a critical driver of Canadian terms of trade but the impact has so far been insufficient to offset the drag from monetary easing. Meanwhile, discussions around scrapping Canada’s oil emissions cap highlight the political balancing act between competitiveness and climate policy, underscoring long-term structural risks for the resource-driven economy.
In the near term, CAD’s direction will hinge on oil price stability, incoming labor market readings, and BoC communication. Unless energy prices rally meaningfully or domestic data delivers positive surprises, the loonie is likely to remain under pressure against higher-yielding peers, particularly if the Federal Reserve adopts a less dovish stance than Ottawa.
Technical Analysis
USDCAD, H4:
The USDCAD is stabilizing above the 1.3750 support, following a recent dip that tested this level before buyers stepped in. On the upside, the pair is facing initial resistance around 1.3815, while a firmer hurdle sits near 1.3875. A sustained move above this zone could open the way toward the 1.3970 region. On the downside, a break back below 1.3750 would expose deeper supports at 1.3650.
Momentum signals lean cautious. The RSI has rebounded to 42 after touching oversold levels, suggesting bearish pressure has eased, though momentum remains subdued. Meanwhile, the MACD is still in negative territory, but the histogram is showing signs of narrowing, hinting at potential stabilization.
Overall, USDCAD is holding a fragile floor at 1.3750, with buyers attempting to regain control. A decisive break beyond 1.3815 is needed to strengthen bullish momentum, while losing 1.3750 would put sellers back in charge.
Resistance level: 1.3815, 1.3875
Support level: 1.3750, 1.3650
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