USD/CAD has staged a modest recovery, bouncing from just above the monthly low of 1.3751. However, the pair remains under pressure below its 50-day Simple Moving Average (currently around 1.4033), suggesting that bearish sentiment still lingers in the market.
This technical setup reflects the broader tug-of-war between U.S. fiscal policy developments and Canada’s evolving inflation outlook, especially as traders reassess expectations for central bank moves ahead of the next Bank of Canada (BoC) meeting.
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Fiscal Policy in Focus as U.S. Pushes Through Spending Bill
The exchange rate’s recent action came as the U.S. House of Representatives narrowly passed a significant spending bill, dubbed the “big, beautiful bill,” with a razor-thin 215-214 vote. This legislative shift signals a potential increase in government expenditure, which could bolster U.S. economic momentum and support the U.S. dollar in the near term.
However, the Canadian side of the equation offers its own complexities. The BoC has issued cautionary remarks about inflation, noting that short-term expectations have risen due to persistent supply chain disruptions and trade frictions. These pressures have added a layer of unpredictability to Canada’s monetary policy path.
Bank of Canada Likely to Hold Rates Amid Hot CPI Data
The BoC’s upcoming policy meeting on June 4 is likely to see a hold in interest rates. April’s stronger-than-expected Consumer Price Index (CPI) figures suggest inflation remains sticky, reducing the urgency for further rate cuts. This cautious stance could provide some underlying support for the Canadian dollar.
Still, the market anticipates the BoC may be nearing the end of its rate-cutting cycle, if not already there. That perception introduces a level of risk to any bullish USD/CAD momentum driven purely by U.S. policy developments.
Key Technical Levels to Watch in USD/CAD
Consolidation Likely in the Near Term
USD/CAD is no longer forming a clear bearish trend of lower highs and lower lows, signaling the potential for near-term consolidation. Currently, the pair appears to be defending support near the weekly low at 1.3814, and it has yet to break decisively below the 1.3850 region—a key 50% Fibonacci extension level.
Upside Targets
If buyers manage to push USD/CAD higher, the next resistance zone lies between 1.3940 (61.8% Fibonacci retracement) and 1.4000 (61.8% Fibonacci extension). A daily close above this range could open the door to further gains toward 1.4110 and potentially up to 1.4210–1.4270, based on a confluence of Fibonacci retracement and extension levels.
Downside Risks
Conversely, a close below 1.3850 would increase the likelihood of a retest of the monthly low near 1.3751. If that level breaks, further downside could extend to the 1.3700–1.3710 zone, and potentially down to 1.3630.
Canadian Dollar Strengthens as USD/CAD Retreats After 1.4000 Rejection
Canadian Dollar Declines as Benchmark Bond Yield Dips
Good News: Canadian Dollar Soars to 5-Month High Amid Rate Pause Hopes and Global Investment Shift
Canadian Dollar Slips Lower Against the U.S. Dollar
Canadian Dollar Outlook USD/CAD Trends Amid Trump, Trudeau, Tiff, and Tariffs
Canadian Dollar Strengthens as CPI Data Reduces Expectations for Large Rate Cuts
Final Thoughts: What Traders Should Watch Next
With U.S. fiscal policy in flux and Canadian inflation showing resilience, USD/CAD is caught between competing macroeconomic forces. Traders should pay close attention to upcoming economic data, including Canada’s GDP and the U.S. PCE inflation report, as well as central bank communications leading up to the BoC’s June 4 meeting.
Technical signals hint at a possible consolidation phase, but a break of key levels—either above 1.4000 or below 1.3750—could define the next major move in USD/CAD.