USD/CAD Price Forecast: Recovers further from four-week low, climbs to 1.3735-1.3740 area
- USD/CAD attracts buyers for the second straight day amid a combination of supporting factors.
- Retreating Oil prices undermine the Loonie and act as a tailwind amid a modest USD uptick.
- Traders, however, might refrain from placing directional bets ahead of key central bank events.
The USD/CAD pair builds on the overnight recovery from the 1.3670 area, or a nearly four-week low, and gains some follow-through positive traction for the second straight day on Tuesday. Spot prices stick to modest intraday gains through the first half of the European session and currently trade around the 1.3735-1.3740 region, up over 0.15% for the day.
The US Dollar (USD) edges higher as bears opt to lighten their bets ahead of the crucial two-day FOMC policy meeting, starting later today. Furthermore, retreating Crude Oil prices undermine the commodity-linked Loonie and further lend some support to the USD/CAD pair. Traders, however, might refrain from placing aggressive directional bets heading to the key central bank event risks – the Bank of Canada (BoC) policy update and the US Federal Reserve (Fed) decision on Wednesday.
The 100-period Simple Moving Average (SMA) on the 4-hour chart is flat near 1.3832 and remains overhead, keeping the near-term bias tilted lower. A bullish crossover emerges on the Moving Average Convergence Divergence (MACD) as the MACD line rises above the Signal line around the zero mark and the histogram turns positive, suggesting improving momentum. The Relative Strength Index (RSI) prints 42, edging higher and reflecting fading bearish pressure.
Measured from the 1.3929 high to the 1.3671 low, the 23.6% Fibonacci retracement level at 1.3732 acts as a nearby pivot, while the 38.2% at 1.3770 forms initial resistance. Follow-through above the latter could extend the recovery toward the 100-period SMA at 1.3832, whereas a close back below 1.3732 would leave the rebound vulnerable within the broader bearish context.
The MACD’s nascent positivity would need the histogram to expand to sustain upside, while an RSI below 50 keeps momentum muted. Overall, upside attempts appear capped unless buyers reclaim resistance decisively.
(The technical analysis of this story was written with the help of an AI tool.)
USD/CAD 4-hour 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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