31 July 2025,06:41
Daily Market Analysis
31 July 2025, 06:41
Key Takeaways:
*BoC’s dovish tone and weak growth outlook widen Fed divergence.
*Tariff risk looms large with trade deadlines and no U.S. deal in sight.
*Policy uncertainty and slowing economy keep pressure on CAD ahead of September.
Market Summary:
The Canadian Dollar extended its losing streak, with USD/CAD climbing to a two-month high around 1.3820 as traders priced in a growing divergence between the Bank of Canada (BoC) and the Federal Reserve. The BoC’s decision to hold rates at 2.75% was widely expected, but Governor Tiff Macklem’s dovish undertones highlighting downside risks to growth and the potential need for rate cuts have kept the loonie under pressure.
Trade tensions remain front and center. With the August 1 deadline fast approaching, Canada has yet to finalize a trade pact with the U.S. that would shield it from looming 35% tariffs on non-USMCA-compliant goods. Prime Minister Carney’s admission that a zero-tariff outcome is unlikely has rattled investor confidence, especially as both the EU and Japan have already secured separate deals with Washington. The potential fallout from failed negotiations which combined with a likely 1.5% contraction in Q2 GDP has markets pricing in a 63% probability of a rate cut as early as September.
Oil prices, typically a tailwind for CAD, have failed to provide support, with WTI struggling near $70 amid broader risk-off sentiment. Meanwhile, the Fed’s hawkish pause and still-solid U.S. data have widened the U.S.-Canada rate spread, further weakening the loonie’s appeal. Technically, USD/CAD is testing resistance at 1.3830; a clean break could open the door to a run toward 1.39 and beyond.
In the near term, CAD remains vulnerable to both monetary divergence and trade headlines. Unless Ottawa secures a last-minute deal or the BoC shifts back to a neutral footing, downside pressure is likely to persist.
Technical Analysis
USD/CAD is holding firm above the 1.3820 level, currently trading just below the 1.3848 resistance after an extended bullish run. The pair has cleared multiple resistance levels in recent sessions, with the breakout above 1.3750 establishing a strong base for further upside. The next key level to watch is the 1.3967 resistance zone, which could serve as a near-term target should bullish momentum persist. On the downside, the 1.3750 level now acts as an immediate support, followed by the 1.3762 zone, providing a cushion for any potential pullback.
Momentum indicators are showing strong bullish readings but also suggest the possibility of overextension. The Relative Strength Index (RSI) has climbed sharply to 76, now firmly in overbought territory, which could trigger some profit-taking in the near term. Meanwhile, the MACD continues to print well above the zero line, with a wide bullish crossover and expanding histogram bars, indicating that upward momentum remains firmly intact.
Overall, the technical outlook remains favorable for USD/CAD, with trend indicators strongly leaning bullish and price action confirming a breakout. However, given the elevated RSI levels, traders should be prepared for a possible consolidation or short-term pullback before the pair makes another attempt at breaking above the 1.3848 resistance and challenging the 1.3967 high.
Resistance Levels: 1.3848, 1.3967
Support Levels: 1.3750, 1.3652
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