USD/CAD Price Forecast: Strengthens above 1.4000, bullish tone prevails above key averages
- USD/CAD gains traction to near 1.4020 in Monday’s early European session.
- The constructive tone of the pair prevails above the 100-day SMA, with bullish RSI momentum.
- The first downside target to watch is 1.4000; the immediate resistance level emerges at 1.4080.
The USD/CAD pair gathers strength to around 1.4020 during the early European trading hours on Monday. Falling crude oil prices weigh on the commodity-linked Canadian Dollar (CAD) against the US Dollar (USD).
Oil prices drop as traders keep watch for a recovery in shipments from Saudi Arabia even after attacks by Iran-backed Houthis on Saudi Arabia with missiles and drones on Saturday, per CNBC. It is worth noting that Canada is a major oil-exporting country, and low crude oil prices generally have a negative impact on the CAD.
Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee and Bank of Canada (BoC) Governor Tiff Macklem are set to speak later on Monday. Scotiabank strategists said Macklem’s comments “may reaffirm the hawkish tone adopted following the bank's meeting earlier this month.”
The Canadian central bank decided to keep its key policy rate unchanged at 2.25% at its September meeting, as widely expected. However, it noted that inflation risks had risen, while new tariffs had made the growth outlook more uncertain. Traders see nearly a 60% odds the BoC would hike at its next policy announcement on October 28.
CAD under pressure as wider US spreads and BoC inflation risks weigh
Strategists at Scotiabank note that the Canadian Dollar remains on the back foot, with “wider US/Canada front-end spreads” described as “the biggest drag on the currency,” even as crude oil prices are “lower on the day” as well. They add that “spot does remain somewhat overvalued relative to our fair value estimate (1.3910),” and caution that, “at the margin, the weaker CAD is unhelpful for the BoC as it considers building inflation risks.” Looking ahead, Scotiabank highlights that Governor Macklem is speaking on Monday in Halifax and “may reiterate concerns about intensifying upside risks to inflation,” suggesting that “strengthening bets on tighter BoC policy before year end would provide some anchoring for the CAD.”
Technical Analysis: USD/CAD maintains a constructive tone above the key 100-day SMA
In the daily chart, USD/CAD holds a bullish near-term bias as spot trades above the 100-day simple moving average (SMA) and rides the upper side of the 20-day Bollinger envelope, with the latest upper band coming in. The Bollinger middle band adds further trend support, while the Relative Strength Index (RSI) at 63 stays in positive territory, suggesting ongoing upside pressure rather than immediate overbought stress.
On the downside, initial support level is seen at the 1.4000 psychological level, followed by the 100-day SMA at 1.3950. A deeper pullback would expose the 20-day Bollinger middle band near 1.3880, ahead of a more distant cushion at the lower band around 1.3745.
On the bright side, the immediate resistance level is located at the August 4 high of 1.4080, en route to the July 28 high of 1.4129. Any follow-through buying above this level could pave the way to the June 24 high of 1.4248.
(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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