August 31st chart of the week: USD/CAD outlook: Key levels before NFP & BoC

• USD/CAD is consolidating above strong confluence support at 1.3865, including the 9 EMA and 50 SMA, ahead of key risk events.
  
• U.S. NFP is projected to rebound to +58k in August⁵, while the Fed’s hawkish stance at Jackson Hole fuels rate-hike expectations⁶.
  
• The Bank of Canada is widely expected to hold its policy rate at 2.25%³, keeping the rate differential with the U.S. at historical highs.

Ahead of the September 2026 U.S. Nonfarm Payrolls report, financial markets face a tight tug-of-war between labor market deceleration (-23k in July)¹ and lingering inflation concerns. Following Fed Chair Kevin Warsh’s hawkish Jackson Hole remarks, market expectations for a September rate hike have surged to nearly 65%². In contrast, Canada’s Q2 GDP expanded by 3.3% annualized³ alongside steady CPI inflation (3.03% YoY, core 1.90%)4, supporting expectations for the Bank of Canada to hold rates at 2.25% and widening the U.S.-Canada yield differential. Technically, USD/CAD is consolidating above confluent support at 1.3865 (9 EMA, 50 SMA, weekly pivot) following a pullback from resistance near 1.3910, with a neutral 14-period RSI at 45.50 signalling a balanced bias ahead of key macro data.

The upcoming U.S. nonfarm payrolls (NFP) report—scheduled for release by the Bureau of Labor Statistics (BLS) on Friday, September 4, 2026, at 8:30 AM ET—serves as one of the most critical economic events for global markets. (Please check your local time) Bloomberg consensus projections indicate that August nonfarm payrolls will increase by 58K⁵, marking a recovery from recent declines.

Following a surprising contraction in July, when total nonfarm payrolls fell by 23,000 jobs, market participants are closely watching this release, along with any revisions to last month’s report, for signs of whether the labor market is stabilizing or facing a broader slowdown.

Over the past three-month period, NFP started with solid gains; however, in May, job creation decelerated and then contracted to -23k in July. This recent downturn was driven primarily by severe cutbacks in key sectors, including steep reductions in government jobs (-53k) and leisure & hospitality (-40k), as well as smaller contractions in other areas. Partially offsetting these losses were continued gains, mainly in education & health services (+25k), construction (+22k), and professional & business services (+18k), though not enough to prevent the overall headline figure from sliding into negative territory¹.

During the Jackson Hole economic symposium, Fed Chair Kevin Warsh provided a hawkish outlook, cautioning that disinflationary momentum has plateaued. Warsh noted that core price trends have not yet converged on the 2% target. Maintaining that the primary mandate remains price stability, he suggested that further tightening could be required if data do not soon show a clear downward trajectory. Additionally, Warsh reiterated his preference for a “quieter Fed,” moving away from explicit forward guidance and leaving the door open for a potential rate hike before year-end⁶.

Following Fed Chair Kevin Warsh’s hawkish address at the Jackson Hole symposium on August 28, 2026, market expectations for an interest rate hike at the upcoming September 16 FOMC meeting surged sharply. As displayed in the CME FedWatch tool chart above, the target rate probability for the 375-400 bps range - representing a 25-basis-point rate increase from the current 3.50%-3.75% band - experienced a steep upward trajectory, climbing from below 40% before the speech to nearly 65% (and stabilizing around 57%) by September 1. This sudden repricing reflects investors’ reaction to Warsh’s warning that underlying inflation trends have not improved sufficiently toward the Fed’s 2% target, effectively erasing earlier expectations for a policy pause or near-term rate cuts and prompting markets to price in a significantly higher likelihood of monetary tightening.

Canada’s economic backdrop reflects a solid rebound alongside steady price dynamics, with headline year-over-year CPI holding around 3.03%. In comparison, the Bank of Canada (BoC) core inflation index (trimmed mean) remains contained at 1.90%. Transportation (1.317 percentage points) and shelter (0.372 percentage points)⁴ continue to drive overall CPI contributions, but stable core measures signal underlying price pressures are muted. On the growth front, Q2 GDP expanded at a robust 3.3% annualized pace - up from a revised 0.3% in Q1³ - powered by strong exports and household spending. Although the labor market showed momentum in July, the hiring pace may remain vulnerable in the coming months as broad macro uncertainties persist.

Despite strong recent output, potential headwinds from U.S. trade friction and tariff threats may take time to materialize fully. In response to past easing, the Bank of Canada has cut its policy rate by half since April 2024 to 2.25%, pushing its rate differential with the U.S. Federal Reserve to its widest level in three decades. Given that core inflation is well anchored and the economic impact of trade disputes remains lagged, the BoC is widely expected to hold its policy rate steady at 2.25% at its September 2nd decision.

• Following a breakout in February 2025 below the lower border of an ascending channel, price action traded within a narrowing formation, as marked by the red lines on the chart. In June 2026, price action broke above the upper border of the narrowing formation, reached highs near 1.4250, and then consolidated for a few days (yellow rectangle).
  
• By mid July, following the consolidation, price action began to trend downward. The move reached the upper border of the previously broken narrowing formation, where it found support on August 21, 2026 (marked by a blue circle on the chart).
  
• Last week, at market open on Monday, price action opened above the previous Friday’s close, forming an upward gap on the chart (marked by an arrow). Following the gap, the price continued higher, reaching a high near 1.3910 as the Jackson Hole speech and the trading week wrapped up on Friday, August 28th 2026.
  
• As trading began this week, an opposing pattern emerged: price action completed a bearish engulfing candle, almost erasing the entire upward move from Friday of the previous week.
  
• Currently, price action is trading above a confluence of support at the intersection of the EMA 9 and the SMA 50 with the weekly PP of 1.3865, and below a resistance range within the monthly PP of 1.3889 and the high of the bearish engulfing candle near 1.3910.
  
• RSI remains in line with price action, currently near its neutral levels at 45.50.

In conclusion, USD/CAD is at a critical juncture, balancing hawkish Fed rate-hike expectations against a robust Canadian economy and potential monetary policy divergence. Technically, the daily chart shows the pair trading in a neutral consolidation band above key confluence support at 1.3865 (EMA 9, SMA 50, and weekly PP) and below immediate resistance at 1.3889 (monthly PP) and 1.3910. The formation of a bearish engulfing candle suggests fading short-term bullish momentum, further supported by a neutral RSI of 45.50 and positioning reductions in the COT report⁷. A breakout in either direction is highly anticipated, with the upcoming Bank of Canada rate decision and the U.S. Nonfarm Payrolls report as the primary macro catalysts determining the pair’s next directional trend.

Key:

• EMA: Exponential Moving Average
• SMA: Simple Moving Average
• RSI: Relative Strength Index
• PP: Pivot Point
• S: Support
• R: Resistance

Footnotes

¹https://www.bls.gov/news.release/empsit.htm

²https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

³https://www.cbc.ca/news/business/canada-gdp-june-2026-9.7323847

⁴https://www150.statcan.gc.ca/n1/daily-quotidien/260817/dq260817a-eng.htm?HPA=1&indid=3665-1&indgeo=0

⁵https://www.bloomberg.com/markets/economic-calendar

⁶https://www.federalreserve.gov/newsevents/speech/warsh20260828a.htm

⁷https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm

⁸https://ca.finance.yahoo.com/news/bank-canada-expected-hold-interest-141700290.html