Global markets are bracing for a double dose of central bank action today, with both the BoC and the Fed expected to deliver interest rate cuts. While the decisions themselves are largely anticipated, the bigger question is what kind of guidance policymakers provide for the months ahead. With USD/CAD now sitting just above the neckline of a head and shoulder top pattern, today’s policy decisions could be the make or break for the currency pair.
The BoC is almost certain to trim its policy rate by 25bps to 2.50%. The case for cutting was reinforced by August CPI, which rose 1.9% yoy — weaker than forecast. While core inflation remains sticky at elevated levels, the fact that it has stayed steady for three months gives policymakers confidence that underlying pressures are contained.
Beyond inflation, the growth backdrop has deteriorated noticeably. Canada’s economy contracted by -0.4% qoq in Q2, undershooting the BoC’s own forecasts. August data revealed a second consecutive month of job losses and a higher unemployment rate. These signals of slackening demand strengthen the case for pre-emptive easing. Markets now want to know whether Governor Tiff Macklem will acknowledge the need for more cuts before year-end.
According to a Reuters poll, over 70% of economists see at least one more 25bps reduction in 2025, with some forecasting two additional cuts to take the policy rate down to 2.00%. Whether the BoC leans toward validating that view, or opts to remain data-dependent, could set the tone for Canadian Dollar.
For the Fed, a 25bps cut to 4.00–4.25% is virtually locked in, with futures assigning only a 4% chance to a larger 50bps move. Consensus has hardened around the idea of “back-to-back-to-back” cuts in September, October, and December, which would lower the target range to 3.50–3.75% by year-end. The policy statement, dot plot, and Chair Jerome Powell’s press conference will be dissected for confirmation of this trajectory.
Beyond the near term, attention will turn to the pace of easing in 2026 and beyond. June projections showed rates drifting to 3.6% in 2026 and 3.4% in 2027, with the longer-run neutral rate anchored near 3.0%. The critical question is whether the Fed signals that the 3.00–3.25% zone could be reached as early as 2026, suggesting a faster normalization path than previously expected — with significant implications for bonds, equities, and Dollar.
Technically, USD/CAD is now on a knife edge. Decisive break below 1.3725 would complete a head-and-shoulders top (ls: 1.3878; h: 1.3923; rs: 1.3889), confirming that the corrective rebound from the 1.3538 low has ended. That would put the larger downtrend back in play, with an retest of 1.3538 first. Firm break there would open the way toward 61.8% projection of 1.4791 to 1.3538 from 1.3923 at 1.3149.
