USD/CAD Price Forecast: Declines below 1.4100, but holds mildly bullish bias above key support
- USD/CAD weakens to near 1.4080 in Tuesday’s early European session.
- The pair maintains a constructive outlook above the key 100-day SMA.
- The first upside barrier emerges at 1.4129; the initial support level is seen at 1.4040.
The USD/CAD pair trades in negative territory around 1.4080 during the early European trading hours on Tuesday. The Canadian Dollar (CAD) attracts some buyers against the US Dollar (USD) as crude oil prices elevated.
Iran’s Islamic Revolutionary Guard Corps (IRGC) said on Monday that Tehran has not yet completely closed the Strait of Hormuz and can expand the scope of the blockade to the Bab al-Mandeb Strait and the Suez Canal.
Meanwhile, the Houthis claimed Monday to have attacked King Khalid International Airport in Riyadh, Saudi Aramco facilities in Yanbu on the Red Sea Coast and the Shaybah oilfield and Saudi naval forces. It is worth noting that Canada is a major oil-exporting country, and high crude oil prices generally have a positive impact on the Loonie.
Data released by Statistics Canada earlier this week revealed that headline Consumer Price Index (CPI) rose by 0.1% month-on-month (MoM) in September, compared to a decline of 0.1% in August. This figure came in softer than the expected rise of 0.2%. On an annual basis, the CPI inflation climbed to 3.1% in September from 3.0% in the previous reading, below the market consensus of 3.2%.
Money markets are betting the Bank of Canada (BoC) will hold its rate at 2.25% on October 28, although they are pricing in a 25-basis-point hike in December, according to Reuters.
BoC walks tightrope as softer data clash with inflation risks
Economists at Royal Bank of Canada argue that the Bank of Canada is still facing “an uncomfortable balance” as it weighs a softening domestic backdrop against lingering price pressures. They note that “softer labour-market data and higher fixed borrowing costs give policymakers room to remain patient,” supporting their “base-case forecast” that “the Bank will hold the overnight rate unchanged through the remainder of 2026 before gradually raising rates in 2027.”
At the same time, RBC cautions that policymakers “remain alert to the risk that persistently elevated oil prices lift inflation expectations or generate broader second-round price pressures,” a dynamic that complicates the case for prolonged steady policy. Moreover, they highlight that “recent communication from the Bank of Canada and Governor Macklem are denoting more urgency than the data to date might suggest and add to the risk the Bank chooses to move preemptively,” underscoring the potential for a shift away from the current wait-and-see stance.
Technical Analysis: USD/CAD keeps a mildly bullish above the 100-day SMA
In the daily chart, USD/CAD holds a mildly bullish near-term bias as it remains above the 100-day simple moving average (SMA), which now underpins the broader uptrend. Price is pressing into the lower line of the Bollinger Bands while the middle band stays overhead, suggesting upside potential is intact but facing nearby supply. The Relative Strength Index (RSI) at 44 keeps momentum in a neutral-to-soft zone, hinting that bulls may need fresh catalysts to extend gains toward the upper band.
On the topside, immediate resistance level emerges at the July 28 high of 1.4129, en route to the middle Bollinger band at 1.4195, acting as the next hurdle. Further north, the next hurdle to watch is the upper boundary of Bollinber band near 1.4310.
On the downside, the key support level is located at the 100-day SMA at 1.4040. A daily close below this level would weaken the current constructive tone and open the door to the September 18 low of 1.3976, followed by the August 31 high of 1.3912.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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