The Canadian Dollar (CAD) advanced against the U.S. Dollar (USD) on Tuesday, extending its winning streak for the second straight session as the Greenback weakened following disappointing U.S. Consumer Confidence data. At the time of writing, USD/CAD trades near 1.3944, down 0.30% intraday.
According to the Conference Board, U.S. Consumer Confidence slipped to 94.6 in October from a revised 95.6 in September, marking its second consecutive monthly decline. While the Present Situation Index edged up to 129.3, the Expectations Index dropped to 71.5, staying below the key 80-point recession threshold for the ninth month in a row. Inflation expectations for the coming year also ticked higher to 5.9%, reflecting lingering price concerns.
In reaction to the data, the U.S. Dollar Index (DXY), which gauges the USD’s performance against six major peers, eased to 98.63 from its intraday high of 98.95. The weakness in the dollar comes as traders brace for two critical central bank decisions on Wednesday—from the Bank of Canada (BoC) and the Federal Reserve (Fed).
Markets largely expect the BoC to trim its policy rate by 25 basis points to 2.25%, signaling a possible end to its current easing cycle. According to a Bloomberg survey, 20 out of 27 economists foresee a cut, while OIS pricing shows an 88% probability. The move comes as Canada grapples with a 1.6% GDP contraction in Q2—the steepest since 2020—and a 7.1% unemployment rate, despite inflation holding at 2.4%.
Meanwhile, the Fed is also anticipated to lower rates by another 25 bps following softer U.S. inflation data and Powell’s recent acknowledgment of rising downside risks to employment. The CME FedWatch Tool shows a 96.7% likelihood of the move, reinforcing a dovish policy outlook.
Trade Idea:
Sell USD/CAD below 1.3930, targeting 1.3850, with a stop-loss above 1.3980, as market sentiment favors CAD strength amid dovish Fed expectations.