USD/CAD Price Forecast: Strengthens above 1.4250, retains positive bias above 100-day SMA
- USD/CAD gathers strength to near 1.4260 in Thursday’s early European session.
- The pair keeps a bullish vibe, with the price holding above the 100-day SMA.
- The initial support level is seen at 1.4240; the first upside barrier emerges at 1.4287.
The USD/CAD pair gains momentum to around 1.4260 during the early European trading hours on Thursday. Falling crude oil prices exert some selling pressure on the commodity-linked Canadian Dollar (CAD) against the US Dollar (USD).
Russian and Ukrainian negotiators reached an agreement on a major prisoner exchange following two days of peace talks in Abu Dhabi, which concluded on Wednesday, per Reuters. However, US mediators noted that significant disagreements persist over key issues, particularly territorial matters. Ukrainian President Volodymyr Zelenskiy expressed hope to achieve concrete results in resolving the war this year.
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.
Traders raise their bets on the Federal Reserve (Fed) rate hike in December following hotter than expected US Consumer Price Index (CPI) inflation data and remarks from Fed Governor Christopher Waller.
Waller said earlier this week that he would support a quarter-point rate increase in December and might push for a half-point move if inflation data is worse than expected.
USD strength seen extending against Canadian Dollar and Korean Won as BoC expectations fade
According to TD Securities, the US Dollar is likely to remain supported against select majors, with analysts seeing “room for the USD to rally selectively against CAD and KRW in the near-term.” They argue that “diverging employment data releases will likely keep USDCAD supported above 1.40,” noting that “rising unemployment rate amid falling wage growth rate in Canada also reduces the market pricing of a December BoC rate hike relative to the Fed.” In this context, TD Securities write that “for investors looking to chase USD upside, we see USDCAD more supported at 1.40 on the back of diverging jobs data.”
Beyond the Canadian Dollar, TD Securities also highlight Korea and Mexico as contrasting cases. They expect “USDKRW should continue to retrace toward 1400 as the market rotates out of AI build-out theme,” while, “to the contrary, Carry and Value factors remain bullish for MXN,” underscoring a more constructive stance on the Mexican Peso even as they position for further USD strength against CAD and KRW.
Goolsbee flags troubling inflation persistence, lifting Fed hawkish tone
Fed’s Goolsbee delivers a notably more hawkish message, with an FXS Speechtracker score of 8/10 compared to the established baseline of 6.8/10, underscoring heightened concern over inflation dynamics. The emphasis that the latest CPI was “borderline disturbing,” that services inflation is “not coming down,” and that “we have a real inflation issue on our hands” signals growing unease about persistent price pressures and the risk of inflation expectations becoming entrenched, even as the job market remains “steady and stable.” By stressing that “everything is always on the table” and that the Fed “must get inflation down to target,” the speech reinforces the possibility of further policy tightening or an extended period of restrictive rates, a backdrop typically supportive of the Dollar against lower-yielding peers.
The FXS Fed Sentiment Index rose by 1.69 points to 145.61, firmly in hawkish territory and consistent with the stronger-than-usual tone captured by the FXS Speechtracker. This elevated reading, well above the neutral 100 mark, reflects a clear shift toward prioritizing inflation control over growth risks, a stance that should keep market expectations skewed toward higher-for-longer U.S. rates and underpin demand for the Dollar.
Technical Analysis: USD/CAD maintains a constructive outlook above the 100-day SMA
In the daily chart, USD/CAD sustains a bullish near-term bias as spot holds above the 100-day moving average (MA) and the Bollinger middle band. Price is also pressing just above the 20-day Bollinger upper band, indicating a strong upside extension, while the Relative Strength Index (14) near 67 suggests firm positive momentum, though edging toward overbought territory.
On the downside, immediate support level is seen at the former Bollinger upper band near 1.4240, followed by the October 7 low of 1.4205, and then the 20-day Bollinger middle band at 1.4065. A breach of this level could expose the 100-day MA at 1.4045, and the lower limit of Bollinger band around 1.3890
On the bright side, the immediate resistance level emerges at the October 12 high of 1.4287, en route to the April 1, 2025 high of 1.4415 and the March 3, 2025 high of 1.4542.
(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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