Powell’s Cautious Stance Lifts USD/CAD as Canadian Dollar Faces Trade and Policy Shifts

The USD/CAD exchange rate has climbed for two consecutive days, posting a short-term gain of approximately 0.5%, buoyed by Federal Reserve Chairman Jerome Powell’s measured remarks on monetary policy. Despite this uptick, the US Dollar’s momentum remains hesitant, with the pair stuck in a directionless range, reflecting market indecision. Meanwhile, Canada’s efforts to diversify its economy through strengthened trade ties and domestic-focused policies could reshape the Canadian Dollar’s outlook, potentially altering the USD/CAD’s trajectory in the coming sessions.

Jerome Powell’s recent comments underscored the Federal Reserve’s delicate balancing act between curbing persistent inflation and supporting a weakening labor market. Speaking on the challenges of the Fed’s dual mandate, Powell cautioned that overly rapid rate cuts could reignite inflationary pressures, emphasizing the need to prioritize employment recovery without destabilizing prices. “The new cycle of rate cuts cannot progress too quickly,” he noted, signaling a reluctance to pursue aggressive easing. This stance provided a temporary boost to the US Dollar, which had been under pressure for much of 2025. The US Dollar Index, which tracks the greenback against a basket of major currencies, stabilized above 97 points, halting its recent declines and lending support to the USD/CAD’s modest advance.

On the Canadian front, economic and policy developments are adding layers of complexity to the pair’s dynamics. A recent meeting on September 18 between Canadian and Mexican leaders focused on deepening trade and security cooperation ahead of the 2026 USMCA review, with bilateral trade already reaching nearly $56 billion in 2024 and poised for further growth. Canada’s broader strategy includes a “Buy Canadian” initiative to boost domestic production and reduce reliance on US trade, mitigating risks to economic growth. If these efforts gain traction, they could bolster confidence in the Canadian Dollar, potentially reversing the USD/CAD’s recent gains, especially if the Bank of Canada maintains steady rates while the Fed continues its anticipated cuts.

The USD/CAD’s near-term path will likely hinge on central bank policies and broader economic signals. With the Fed expected to pursue further rate cuts and Powell’s cautious tone suggesting a gradual approach, the US Dollar’s upside may remain limited. Conversely, Canada’s trade diversification and domestic economic strategies could lend resilience to the Canadian Dollar, particularly if US trade relations introduce new pressures.

For now, the pair’s range-bound movement reflects a market awaiting clearer catalysts, but Powell’s influence and Canada’s proactive policies keep the USD/CAD poised for potential volatility if key technical levels give way.