USD/CAD Price Forecast: Remains capped below 100-day EMA, bearish bias prevails near 1.3700
- USD/CAD steadies around 1.3700 in Friday’s early European session.
- The negative view of the pair prevails below the 100-day EMA with the bearish RSI indicator.
- The initial support level is seen at 1.3660; the immediate resistance level to watch is 1.3746.
The USD/CAD pair holds steady near 1.3700 during the early European trading hours on Friday. However, fears of US involvement in Middle East conflict could spark demand for the US Dollar (USD), a safe-haven currency. The White House said US President Donald Trump will make a decision within the next two weeks about whether to join Israel in the war.
Technically, the bearish outlook of USD/CAD remains in play as the pair remains capped below the key 100-day Exponential Moving Average (EMA) on the daily chart. Furthermore, the downward momentum is supported by the 14-day Relative Strength Index (RSI), which is located below the midline around 45.0, suggesting that the path of least resistance is to the downside.
The initial support level for the pair is seen at 1.3660, the low of June 6. Any follow-through selling below this level could see a drop to 1.3568, the lower limit of the Bollinger Band. A decisive break below the mentioned level could expose 1.3430, the low of September 24, 2024.
On the bright side, the first upside barrier for USD/CAD emerges at 1.3746, the high of June 19. Sustained trading above this level could pave the way to 1.3830, the upper boundary of the Bollinger Band. Extended gains could see the next hurdle at 1.3945, the 100-day EMA.
USD/CAD daily chart
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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