Canadian Dollar Extends Gains as USD Weakens on Risk-On Sentiment

The Canadian Dollar (CAD) continued to strengthen on Wednesday, benefiting from a rebound in global risk appetite that pressured the US Dollar (USD). The Loonie has now gained in three of the past four trading sessions, building momentum after recently hitting a 13-week low.

Risk Sentiment Boosts the Loonie

• The Canadian Dollar rose about 0.3% against the US Dollar as market optimism drove investors away from safe-haven assets.
• USD/CAD pulled back from recent highs, with traders watching the 50-day Exponential Moving Average (EMA) near 1.3777 as a key support level.
• Despite gains, CAD momentum remains tied to external market flows as Canada’s economic calendar has been quiet this week.

Canadian GDP and US PCE Data in Focus

The next major test for the Canadian Dollar comes on Friday when Canada releases its second-quarter GDP report. Economists expect a 0.6% contraction, raising concerns about slower domestic growth.

However, this data may take a back seat to the US Personal Consumption Expenditures (PCE) inflation report, due the same day. Core PCE is projected to rise on a yearly basis, reflecting ongoing price pressures from tariffs. The simultaneous release of both reports could spark sharp intraday volatility for USD/CAD.

Key Events Ahead

• Thursday: US GDP figures, which could shift sentiment before Friday’s releases.
• Friday: Canadian Q2 GDP and US PCE inflation, creating a potential market-moving scenario for CAD traders.

Canadian Dollar Forecast: Levels to Watch

The Canadian Dollar has recovered more than 1% against the US Dollar since last week’s lows. USD/CAD recently rejected resistance at the 200-day EMA near 1.3880, while holding above the 50-day EMA around 1.3777.

As long as USD/CAD trades above 1.3750, the pair’s higher-lows pattern suggests further CAD resilience. A break below 1.3750, however, could open the door for a deeper move toward the 1.3600 level.

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