The Canadian Dollar (CAD) experienced a lackluster start to the week, trading within a narrow range against the US Dollar (USD) as markets digested last Friday’s US jobs report. With a light economic calendar for Canada this week, the loonie is primarily reacting to broader market movements and anticipation of key US data releases.

Market Drivers: Fed Rate Cut Expectations and US Inflation Data in Focus

• Fed’s Path to Rate Cuts: Investors are eagerly awaiting further signals from the Federal Reserve (Fed), particularly during Chair Jerome Powell’s two-day testimony before Congress, to gauge the timing and pace of potential rate cuts.
• US Inflation Data: The upcoming release of US Consumer Price Index (CPI) and Producer Price Index (PPI) data will be crucial for assessing the Fed’s monetary policy outlook. Market participants are hoping for a further easing in inflation to support the case for a rate cut in September.
• Limited Canadian Data: With no major economic releases scheduled for Canada this week, the loonie remains at the mercy of broader market sentiment and external factors.

Technical Analysis: USD/CAD Stalls, Downside Potential Remains

The USD/CAD pair is currently consolidating near the 1.3650 level, struggling to reclaim its recent gains. The 200-hour Exponential Moving Average (EMA) at 1.3660 is acting as a key resistance level. A failure to break above this level could open the door for further downside towards recent lows.

Key Takeaways:

• The Canadian Dollar remains range-bound on a quiet Monday, awaiting further signals from the Fed and key US inflation data.
• The USD/CAD pair is stalling at the 200-hour EMA, with the potential for further downside if the USD weakens further.
• Traders are closely watching Fed Chair Powell’s testimony for clues about the Fed’s policy trajectory and its implications for the USD/CAD pair.