USD/CAD Begins the Week With Minimal Volatility
The new trading week kicks off with USD/CAD showing a muted move of less than 0.1%, reflecting a broader atmosphere of uncertainty and market indecision. Traders are grappling with two dominant forces: the unresolved U.S. government shutdown and the absence of key economic data that typically guide monetary policy.
As a result, the pair remains range-bound, lacking a clear directional bias, with traders unwilling to take aggressive positions until more clarity emerges from Washington and the Federal Reserve.
Table of Contents
Political Gridlock: How the U.S. Government Shutdown is Shaking Confidence
Where Things Stand Now
It’s been six days since the U.S. government shutdown began, and political leaders remain locked in a stalemate. Congress and the White House have failed to reach a budget agreement, resulting in roughly 750,000 federal employees being furloughed or working without pay.
Economic and Market Risks
The prolonged uncertainty is beginning to weigh on market sentiment. If the shutdown mirrors the 2018–2019 crisis, which lasted 34 days and cost the U.S. economy nearly $3 billion, the current situation could deliver a similar blow.
Market confidence in the U.S. dollar is beginning to erode. The U.S. Dollar Index (DXY) is hovering around 98, but it’s showing signs of hesitation, with no clear trend emerging. This uncertainty is starting to bleed into USD/CAD, which remains stuck in a narrow range.
Delayed Data Means Foggy Outlook for the Federal Reserve
Key Reports Missing
One major consequence of the government shutdown is the halt of key economic releases, such as the Non-Farm Payrolls (NFP) report originally scheduled for October 3. Without reliable data, the Federal Reserve is essentially navigating blind, complicating its path forward on interest rate decisions.
Rate Cut Expectations Rising
According to CME Group’s FedWatch Tool, the market is pricing in a 92.5% probability of a 0.25% rate cut at the October 29 Fed meeting, and an 81.3% probability of another cut in December. Without new data to challenge this narrative, expectations of a continued dovish stance remain intact.
What About the Bank of Canada?
More Uncertainty, But Less Pressure
The Bank of Canada (BoC) faces a more nuanced decision. While rate cuts are not off the table, markets are split on the next move. There’s a 55% chance of a 0.25% rate cut at the upcoming October meeting, while 45% expect rates to hold steady.
This contrast in central bank outlooks—a dovish Fed versus a neutral or slightly hawkish BoC—could shift the rate differential in favor of the Canadian dollar. That, in turn, would increase downward pressure on USD/CAD in the near term.
USD/CAD Technical Outlook: Is the Uptrend Losing Steam?
Recent Price Action
USD/CAD has been in a steady uptrend since late July, with prices pressing against a key resistance zone marked by the 200-period simple moving average (SMA). However, momentum is showing signs of fading as buying strength weakens and the pair moves sideways.
RSI Indicator
The Relative Strength Index (RSI) remains above 50, indicating that bulls still have some control. However, repeated retreats to the midpoint suggest growing neutrality and a possible shift toward consolidation.
MACD Indicator
The MACD histogram is hugging the zero line, further signaling a lack of momentum. This suggests that neither bulls nor bears currently have the upper hand, raising the likelihood of range-bound trading in the short term.
Key Technical Levels to Watch
- 1.39849 – Major Resistance
This level, aligned with the 200-period SMA, remains the key ceiling for bullish momentum. A break above could signal a continuation of the longer-term uptrend. - 1.39036 – Intermediate Barrier
This former top of a sideways range could act as short-term support, especially if prices remain indecisive. - 1.38235 – Critical Support
Aligned with both the 50-period SMA and the 23.6% Fibonacci retracement, a close below this level would indicate a potential trend reversal and favor a bearish scenario.
Final Thoughts: Uncertainty Reigns as USD/CAD Awaits Clarity
Until the U.S. government shutdown is resolved and critical economic data returns to the calendar, traders should prepare for more sideways movement and short-term volatility in USD/CAD.