USD/CAD Price Forecast: Remains on the defensive as bearish bias persists below 100-day EMA
- USD/CAD remains weak near 1.3650 in Tuesday’s early European session.
- The negative outlook of the pair prevails below the 100-day EMA, with bearish RSI momentum.
- The initial support level is seen at 1.3638; the immediate resistance is located at 1.3770.
The USD/CAD pair remains on the defensive around 1.3650 during the early European session on Tuesday. Rising oil prices due to Middle East tension provide some support to the commodity-linked Loonie. It is worth noting that Canada is a major oil-exporting country, and high crude oil prices generally have a positive impact on the Canadian Dollar (CAD).
US President Donald Trump said that US Vice President JD Vance is leaving later on Monday to resume negotiations, “either Tuesday night or Wednesday morning,” Bloomberg reported, citing people familiar with the plans. Vance is expected to be joined by Jared Kushner and special envoy Steve Witkoff. The next round of talks is expected to take place in Pakistan.
Technical Analysis:
In the daily chart, USD/CAD retains a bearish near-term bias as spot holds beneath the 100-day exponential moving average (EMA) and the Bollinger Bands’ 20-day middle line. Price is hovering just above the lower Bollinger band support at 1.3638, suggesting the recent slide is pressing the lower edge of the volatility envelope, while the Relative Strength Index (14) around 35 hints at soft but not yet oversold momentum.
On the downside, immediate support is located at the lower Bollinger band around 1.3638, where a clear break would open the door to an extension of the decline toward lower November levels. On the topside, initial resistance is seen at the 100-day EMA at 1.3770, followed by the Bollinger middle band near 1.3822, while a sustained recovery above these caps would be needed to ease bearish pressure and allow a broader rebound toward the 1.4000 region.
(The technical analysis of this story was written with the help of an AI tool.)
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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