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.)