USD/CAD Price Forecast: Seems vulnerable near 1.3660; 200-hour EMA holds the key for bulls
- USD/CAD struggles to capitalize on a modest uptick as US-Iran peace hopes weigh on the USD.
- Sliding Crude Oil prices undermine the Loonie and hold back bears from placing aggressive bets.
- Traders also seem reluctant ahead of the BoC/Fed rate decisions amid a bearish technical setup.
The USD/CAD pair attracts some sellers following a modest Asian session uptick to the 1.3680 area on Monday, though it lacks follow-through selling. Spot prices currently trade above mid-1.3600s, nearly unchanged for the day as traders seem reluctant to place aggressive directional bets amid mixed fundamental cues.
Reports that Iran gave the US a new proposal on reopening the Strait of Hormuz and the ending of the war revive hopes for peace talks, which, in turn, dent demand for the safe-haven US Dollar (USD). Meanwhile, the optimism exerts some pressure on Crude Oil prices and undermines the commodity-linked Loonie, acting as a tailwind for the USD/CAD pair. Moreover, traders opt to move to the sidelines ahead of this week's key central bank event risks – the Bank of Canada (BoC) policy update and the outcome of a two-day FOMC meeting on Wednesday.
Last week's failure near the 200-hour Exponential Moving Average (EMA) and the subsequent slide favor the USD/CAD bears. Moreover, the Moving Average Convergence Divergence (MACD) indicator remains marginally negative, while the Relative Strength Index (RSI) hovers just below 40. The momentum indicators together suggest that downside pressure persists despite the lack of an immediate oversold signal. However, it will be prudent to wait for some follow-through selling below the 1.3630 area, or last week's swing low, before positioning for further losses.
On the topside, initial resistance is located at the 200-hour EMA around 1.3703. A sustained recovery above this barrier would be needed to ease the current bearish pressure and open the way for a more meaningful rebound. Until then, the broader technical setup leaves the USD/CAD pair vulnerable to further slippage, with sellers likely to retain control while price action holds below the 1.3700/1.3703 area.
(The technical analysis of this story was written with the help of an AI tool.)
USD/CAD 1-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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