USD/CAD Outlook: Assessing FOMC Minutes and Canadian Inflation Risks

Markets are bracing for the publication of the July FOMC meeting minutes on Wednesday, August 19, where traders will dissect the central bank's deliberations over future rate moves following its 9-3 decision to keep the federal funds target range at 3.50%–3.75%. As Action Forex reports, the discussions occurred before the August 7 non-farm payrolls release, but the text will still be parsed for clues on whether persistent inflation risks or cooling labor market momentum will dominate the committee's calculus heading into the September decision.

The Fed's Tightening Crossroads

The minutes land at a moment when the Fed's dual mandate is pulling in opposite directions. July non-farm payrolls printed an unexpected decline of 23,000 jobs — a sharp reminder that the labor market is losing steam — while core inflation has remained stubbornly above the 2% target. For currency desks, the operative question is which side of that tension wins out in the committee's framing.

CME FedWatch readings as of August 17 suggest the market has already tilted toward a higher-for-longer regime. For the September 16 meeting, conditional probabilities price 63.4% odds that the target range settles at 3.50%–3.75% and 36.6% odds of a shift to 3.75%–4.00%. By the December 9 meeting, the modal probability migrates to 3.75%–4.00% at 45.3%, with 31.7% still anchored at 3.50%–3.75% and 20.3% pricing a further move to 4.00%–4.25%. Through 2027, the central tendency holds near 3.75%–4.00% with probabilities oscillating between 35% and 43% — a clear signal that the market has effectively written off a near-term easing cycle and is positioning for capital flows into dollar-denominated carry.

The Loonie's Soft Underbelly

Across the border, the Bank of Canada faces its own September 2 policy meeting, and the latest CPI print complicates the symmetry. Statistics Canada reported headline inflation accelerating to 3.0% year-over-year in July, up from 2.8% in June, but the BoC's preferred core measures — CPI-Median ticking up to 2.0% from 1.9% and CPI-Trim holding steady at 1.9% — point to a headline jump driven by volatile components rather than broad-based price pressures.

With Canada's unemployment rate sitting around 6.5%, the case for further tightening is unconvincing; raising rates into a cooling labor market to combat oil-driven shocks risks over-tightening. Montreal Exchange consensus has the BoC holding at 2.25%. That stance, combined with the BoC's muted core readings, leaves the loonie structurally vulnerable if the Fed minutes tilt hawkish.

USD/CAD Levels to Monitor

The yield differential remains the operative variable for the pair. A hawkish minutes print — one that emphasizes inflation persistence over labor cooling — should reinforce dollar support against the loonie and likely trigger fresh capital flows into long USD/CAD positioning. A dovish surprise, by contrast, would expose the pair to profit-taking against the crowded higher-for-longer trade.

We are watching the daily chart closely. Support sits beneath the recent consolidation zone, with prior swing highs capping upside attempts. A decisive break in either direction will likely require confirmation from the minutes text itself rather than the surrounding data calendar alone.

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