The US Dollar (USD) experienced notable weakness against both the Canadian Dollar (CAD) and the Swiss Franc (CHF) on Friday, with USD/CAD extending its decline below 1.4000 and trading around 1.3877, levels last seen in early July [1]. This marks the third consecutive weekly loss for USD/CAD, driven by broad USD weakness, stronger Canadian economic data, and elevated oil prices supporting the CAD [1]. Meanwhile, USD/CHF turned negative on the day, snapping a four-day winning streak, but remained above 0.8100, closing the session near the week's highs with a 0.12% loss [2].
Monetary policy expectations are a key focus for both currency pairs. In the US, moderating inflation, weaker consumer spending, and signs of labor market softness have reduced the likelihood of a Federal Reserve interest rate hike next month [1]. For Canada, the upcoming Consumer Price Index (CPI) report is anticipated to provide further insight into inflation and its potential impact on the Bank of Canada's (BoC) policy path [1]. TD Securities expects the BoC to emphasize the softer trajectory for core inflation at its September 2 decision, suggesting that limited passthrough from higher oil prices gives the central bank more flexibility to look through the energy shock [1]. The recent deceleration in core inflation measures supports the BoC's assessment of excess supply and the capacity to absorb stronger growth, allowing it to maintain its current messaging focused on underlying inflation and a gradual closing of the output gap [1].
Technical analysis for USD/CAD indicates a persistent downtrend, with the pair forming lower highs and lows since late June and slipping below key moving averages, including the 50-day and 100-day SMAs [1]. The Relative Strength Index (RSI) at 29 signals oversold conditions, while immediate support is seen at the 200-day SMA near 1.3850, with further support at 1.3700 and 1.3542 [1]. Resistance levels are identified at the 100-day SMA (1.3920) and the 50-day SMA (1.4077) [1]. For USD/CHF, the technical outlook shows a 'bearish flag' pattern, with the RSI turning flat and suggesting potential sideways trading [2]. Key resistance levels for a bullish breakout include 0.8150, 0.8207, 0.8215, 0.8250, and 0.8300, while support is found at 0.8103, 0.8079 (50-day SMA), 0.8035, and 0.8000 [2].
Currency performance tables indicate that the US Dollar was the strongest against the Japanese Yen but weaker against the Canadian Dollar and the Euro [1][2]. The Euro was the strongest against the US Dollar, with a 0.30% gain, while the US Dollar lost 0.38% against the Canadian Dollar and 0.13% against the Swiss Franc [2].
CONCLUSION
The US Dollar's weakness against both the Canadian Dollar and Swiss Franc reflects shifting monetary policy expectations and stronger economic fundamentals in Canada. Technical indicators suggest further downside risk for USD/CAD, while USD/CHF may see sideways movement unless key resistance levels are breached. Market participants are closely watching upcoming inflation data and central bank decisions for further direction.