USD/CAD Breakout Gathers Pace After Bank of Canada Rate Hold

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USD/CAD is eyeing its 5th consecutive day of gains, but with two Central Bank meetings to navigate will such a move materialize?

Bank of Canada (BoC) Keep Rates on Hold

The Bank of Canada kept its interest rate steady at 2.75% in July 2025, as expected. This marks the third hold after cutting rates by 2.25 percentage points over seven decisions. The Bank said it couldn’t provide clear guidance on the economy due to uncertainty caused by U.S. tariffs, which continue to disrupt global trade.

Despite the challenges, Canada’s economy has remained resilient, with strong employment and positive growth projections for the second half of the year under current tariff conditions. However, second-quarter GDP is expected to shrink as exporters received fewer orders after rushing shipments in the first quarter.

On inflation, the Bank expects it to stay close to its 2% target in the medium term.

Interest Rate Differential Favors USD/CAD Upside

There is currently a rate differential in play between the US and Canada. This comes after an aggressive rate cutting cycle by the Bank of Canada while the US Federal Reserve adopted a more cautious approach.

If the Fed continues to hold rates as I suspect, this differential will underpin USD/CAD until either the BoC or the Fed blink. If the BoC blink first, this could add further to the differential and help USD/CAD rise even further.

Oil Prices to Play a Role?

As trade deal announcements continue to flow through as well as the IMF increasing their outlook for global growth this morning, will Oil prices power ahead? The question this year has been one of a global slowdown, but following the upgraded US GDP outlook today and the IMF news, is oil demand set for a boom?

According to the IMF, Global growth is projected at 3.0 percent for 2025 and 3.1 percent in 2026, an upward revision from the April 2025 World Economic Outlook. This reflects front-loading ahead of tariffs, lower effective tariff rates, better financial conditions, and fiscal expansion in some major jurisdictions.

Global inflation is expected to fall, but US inflation is predicted to stay above target. Downside risks from potentially higher tariffs, elevated uncertainty, and geopolitical tensions persist.

If this is correct and Oil prices continue to trend higher, this could put a spanner in the works for further USD/CAD upside. Higher Oil prices could offer support to the CAD and may offset the rate differential, leaving USD/CAD somewhat rangebound.

WTI Oil Daily Chart, July 30, 2025

Source: TradingView.com (click to enlarge)

Technical Analysis - USD/CAD

From a technical standpoint, USD/CAD has many confluences that are pointing toward further upside.

First we have a potential triple bottom pattern which concluded with a low on July 23, 2025. (see chart below)

Next we have the channel break which has the potential to ignite a rally all the way up toward previous highs around 1.4800.

The period-14 RSI has also broken above the neutral 50 level and is still some distance away from overbought territory. A sign of further upside ahead?

There will be a pullback at some point with strong resistance ahead at around 1.3900-1.4000 area.

The bullish setup will only be invalidated with a daily candle close below the 1.3585 handle.

USD/CAD Daily Chart, July 30, 2025

Source: TradingView.com (click to enlarge)

Client Sentiment Data - USD/CAD

Looking at OANDA client sentiment data and market participants are short on USDCAD with 63% of traders net-short. I prefer to take a contrarian view toward crowd sentiment and thus the fact that so many traders are short means USD/CAD prices could rise in the near-term.

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