The USD/CAD currency pair tumbled to a fresh weekly low of 1.3626 as the Canadian dollar gains strength, reversing earlier attempts to break above the 50-day simple moving average (SMA) of 1.3790. This sharp pullback puts the exchange rate on course to potentially revisit the June low of 1.3540 as broader economic factors weigh heavily on U.S. dollar momentum.
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Canadian Dollar Pressures USD Amid Weak U.S. GDP Data
The recent drop in USD/CAD follows a disappointing final revision of U.S. GDP data. The economy shrank by 0.5% in Q1 2025, steeper than the initial estimate of a 0.2% decline. This unexpected contraction has shifted market expectations and increased volatility in the currency markets, especially as investors look ahead to the upcoming U.S. Personal Consumption Expenditure (PCE) Price Index report.
Sticky U.S. Inflation Could Delay Fed Rate Cuts
The core PCE index, the Federal Reserve’s preferred inflation measure, is forecast to rise to 2.6% annually in May, up from 2.5% in April. If inflation remains high, the Federal Open Market Committee (FOMC) may be less likely to cut interest rates in the near term. Fed Chair Jerome Powell recently warned that rising tariffs are contributing to inflationary pressures, which could further stall economic activity and complicate the central bank’s next move.
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Market Reaction Hinges on PCE Report
If the PCE reading meets or exceeds expectations, it could boost the U.S. dollar by reinforcing the Fed’s current hawkish stance. However, a weaker-than-expected figure may intensify calls for rate cuts, keeping USD/CAD under pressure and potentially dragging it closer to the June low of 1.3540.
Technical Outlook: More Downside Ahead for USD/CAD?
The daily chart shows USD/CAD struggling to hold above the 50-day SMA. A sustained move below key support at 1.3630 (38.2% Fibonacci extension) could open the door to testing lower levels, including the monthly low of 1.3540. A further drop below the 1.3510 to 1.3520 zone may pave the way for a decline toward the October 2024 low of 1.3473.
Key Technical Levels to Watch:
- Resistance: 1.3700 to 1.3710 zone, then 1.3780
- Support: 1.3630, followed by 1.3540 and potentially 1.3510
If USD/CAD fails to close below 1.3630, a temporary rebound toward the 1.3700 region is possible. However, the broader technical trend remains bearish as long as the pair trades below the 50-day SMA and fails to regain momentum above 1.3780.
Conclusion
The Canadian dollar is showing strength in late June as USD/CAD continues to slide, pressured by disappointing U.S. economic data and cautious sentiment surrounding Federal Reserve policy. While a rebound is possible, the path of least resistance remains to the downside, especially if upcoming inflation data confirms softening U.S. demand. All eyes are now on the PCE inflation report, which could determine whether this bearish trend in USD/CAD accelerates further into July.
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