FOMC minutes, Canadian inflation data, and USD/CAD technical analysis

• FOMC Policy: Markets await the August 19 minutes for clarity on whether the Fed will prioritize cooling labor market momentum or persistent inflation risks.
• Canada CPI: Headline inflation accelerated to 3.0% on energy costs, while core inflation remained steady. The BoC is expected to hold rates at 2.25% on September 2.
• USD/CAD Technicals: Price action is testing a critical support confluence (long-term SMA200, monthly S2, weekly S1) with the RSI indicating oversold conditions at 29.24.

Market participants are looking ahead to the publication of the July FOMC meeting minutes on Wednesday, August 19, seeking insight into the central bank’s debate on future interest rate moves following its 9–3 decision to keep the benchmark target range at 3.50%–3.75%. Although these discussions occurred before the August 7 non-farm payrolls (NFP) report, analysts will examine the text to determine whether persistent inflation risks or cooling labor market momentum—underscored by slowing hiring and an unexpected drop of 23,000 jobs in July—will play a larger role in shaping the Fed’s decision at the September meeting.

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As of August 17th, 2026, market expectations for Federal Reserve policy rates reflect a shift toward a higher-for-longer regime driven by persistent inflation concerns and economic resilience. According to the CME FedWatch Tool, traders are pricing in conditional meeting probabilities that favor maintaining or slightly adjusting the benchmark interest rate target range. For the September 16, 2026, meeting, the market indicates a 63.4% probability that the target rate will settle in the 350–375 basis points (3.50%–3.75%) range, with a 36.6% probability that it will settle in the 375–400 basis points range. Moving toward the end of the year, the highest probability shifts slightly upward to the 375–400 basis points range, coming in at 45.3% for the December 9, 2026, meeting (with a 31.7% chance remaining at 350–375 bps and 20.3% at 400–425 bps). Looking further out into 2027, the central tendency of market expectations remains firmly anchored around the 375–400 bps target rate—holding probabilities near 35% to 43% through late 2027—suggesting that market participants foresee limited monetary easing and expect interest rates to remain relatively steady rather than returning to lower levels.

Canada’s Consumer Price Index (CPI) report, released by Statistics Canada, showed that while the headline inflation accelerated to 3.0% year-over-year in July, up from 2.8% in June, the Bank of Canada’s preferred core inflation metrics remained largely muted, suggesting that the headline increase was driven by volatile factors rather than broad-based price pressures. Specifically, the CPI-Median rose slightly to 2.0% from 1.9%, while the CPI-Trim held steady at 1.9%, both filtering out extreme price volatility to provide a clearer view of underlying trends.

The jump in headline inflation to 3.0% reduces the immediate likelihood of a rate cut or a hike at the Bank of Canada’s (BoC) upcoming September 2nd meeting. With Canada’s unemployment rate sitting around 6.5%, raising interest rates in a cooling labor market to combat oil shocks may risk over-tightening. According to the Montreal Exchange, BoC is expected to keep the interest rate at its current level of 2.25%.

• Following a breakout below an ascending channel in early 2025, the USD/CAD price action traded within a narrowing formation, as marked by the red lines on the chart.
• Price action continued to find support and resistance along the formation’s lower and upper boundaries throughout its duration till June 2026.
• In May 2026, price action began a sharp trend, as marked by the black line on the chart. In June 2026, the price broke above the upper boundary of the narrowing price action, reaching a high of 1.4240. However, in July, it broke below the trend and completed a pullback to its extension, followed by a steep decline that pierced multiple critical support levels.
• The break took the price below the monthly PP of 1.4081, the monthly S1 of 1.3923, the weekly PP of 1.3901, the fast EMA9, and the intermediate SMA 50.
• Currently, price action is attempting to hold above a key technical support confluence formed by the long-term SMA, the monthly S2 at 1.3833, and the weekly S1 at 1.3837.
• A secondary support level sits below, defined by the extension of the aforementioned formation’s upper red border line.
• The 14-period RSI moves in tandem with price action, sitting in oversold territory at 29.24.