Canada's economic pressure is intertwined with the Federal Reserve's interest rate cut expectations, and the dollar remains range-bound against the Canadian dollar

Recent economic data from Canada have been poor. The latest employment data showed that the unemployment rate rose to 7.1% in August, up from 6.9% in July and higher than market expectations of 7.0%. At the same time, tariff concerns continue to hang over the market, dampening confidence in manufacturing and services, leaving the Canadian dollar without any momentum to rebound.

Kevin Ford, FX and macro strategist at Convera, said: "While Canada has benefited from the CUSMA agreement and overall tariff levels remain low, US tariffs on some sectors and new agreement uncertainty continue to weaken the medium-term economic outlook."

On the US side, on the other hand, the focus is on expectations that the Fed will cut interest rates. The market is widely betting that the Federal Reserve will take more aggressive easing measures at its September meeting, and there is even the possibility of a sharp interest rate cut (50 basis points).

US employment growth was revised down 911,000, the biggest drop on record, reflecting a weaker labour market than previously thought, in the latest benchmark revision, which helped weaken the dollar's fundamental support.

Investors are currently waiting for August PPI data, as well as Thursday's CPI, to further judge the extent and pace of the Federal Reserve's rate cuts.

From the daily perspective, USD/CAD continues its rebound trend and is currently trading near 1.3855:1.3900 is a recent strong resistance. If it breaks through, it may open up further upside, with the target pointing to 1.3950. Below 1.3800 is an important support in the near future. If it falls below, it may drop to the 1.3740 line.

In terms of technical indicators, the RSI remains in a neutral and strong area, indicating that the bulls still have an advantage, but they may face high volatility in the short term.

Editor's opinion: The current USD/CAD trend is affected by a dual force: the Canadian economy is weak and tariff concerns are bearish on the Canadian dollar, while the US employment correction and interest rate cut expectations are limiting the strength of the dollar. In the short term, the exchange rate is likely to remain in the 1.3800-1.3900 range. If the inflation data is lower than expected, the dollar may be under pressure, and the Canadian dollar is expected to rebound slightly.