Canadian Dollar awaits fresh catalyst with Warsh, GDP data in focus

USD/CAD trades around 1.3845 on Friday, edging 0.07% lower on the day, as investors refrain from taking large positions ahead of the highly anticipated speech by Federal Reserve (Fed) Chair Kevin Warsh at the Jackson Hole Symposium.

Market attention is primarily focused on the signals Kevin Warsh could provide regarding the outlook for US monetary policy. Investors are particularly looking to determine whether the Fed is considering further monetary tightening as inflation remains persistent.

The latest inflation data failed to ease these concerns. The core Personal Consumption Expenditures (PCE) Price Index released on Wednesday came in line with market expectations, slightly strengthening expectations of a September rate hike. According to the CME FedWatch tool, markets now price in a 40% chance of a rate increase in September, up from 36% before the release.

Several Fed officials have also struck a hawkish tone ahead of Jackson Hole. Kansas City Fed President Jeffrey Schmidt said inflation remains “sticky” and that policymakers need to continue looking for ways to bring it down. Meanwhile, Cleveland Fed President Beth Hammack said it is “time to act,” referring to further interest rate hikes.

The US Dollar (USD) remains relatively stable against this backdrop. The US Dollar Index (DXY), which tracks the value of the Greenback against a basket of six major currencies, holds above 99.00 on Friday.

On the Canadian side, the Canadian Dollar (CAD) could remain vulnerable amid renewed trade tensions with the United States (US). Canada has added 50% tariffs on certain US products, including copper wire and wood charcoal, to its list of retaliatory measures. A further escalation in trade tensions could weigh on the Canadian economic outlook and limit the Loonie’s ability to appreciate against the Greenback.

Investors are also awaiting Canadian Gross Domestic Product (GDP) figures for the second quarter, due later on Friday. Growth is expected at 3.4% YoY following a 0.1% contraction in the first quarter. A significant surprise in the growth figures could provide a fresh catalyst for USD/CAD, while the pair remains almost unchanged around 1.3845 for now.

Canada growth rebound seen at risk as BoC pricing looks too aggressive

Strategists at Brown Brothers Harriman highlight that Canada’s economy is poised for a solid near-term rebound, with “real GDP … seen rising 3.4% SAAR vs. -0.1% in Q1, which would be stronger than the Bank of Canada’s (BoC) 2.5% projection.” They add that Statistics Canada’s advanced July GDP estimate “will also offer an early read on Q3,” helping to shape expectations for the durability of the recovery. However, BBH cautions that “the worsening US-Canada trade war threatens to cut the rebound short,” even as “encouragingly, core inflation near 2% gives the BoC room to stay on hold and cushion the economy.” In this context, the bank argues that “market pricing 75bps of BoC hikes in the next twelve months look too aggressive, leaving scope for a dovish repricing and USD/CAD firmer near 1.4000.”

USD/CAD technical analysis

In the one-hour chart, USD/CAD trades at 1.3846. The pair is consolidating between its major moving averages, holding above the 200-period simple moving average (SMA) at 1.3837 while remaining capped by the 100-period SMA at 1.3857, which keeps the near-term tone neutral with a slight bullish tilt as buyers defend the lower band. The Relative Strength Index (14) at 37 still leans toward weak momentum, hinting that upside attempts could remain modest unless price can decisively clear the immediate overhead barrier.

On the topside, initial resistance is located at the 100-period SMA at 1.3857, followed by the horizontal barrier near 1.3893, with a further hurdle at 1.3910 if bulls extend the recovery. On the downside, the 200-period SMA at 1.3837 offers first support ahead of the horizontal level at 1.3825, while a deeper pullback toward 1.3783 would expose a more meaningful demand zone if sellers regain control.