USD/CAD Price Forecast: Rallies to 1.3970, fresh high since November 2025 on Oil slump
- USD/CAD gains strong positive traction as an intraday slump in Oil prices undermines the Loonie.
- The divergent Fed-BoC policy expectations counter softer USD and contribute to the momentum.
- Overstretched conditions on the daily chart warrant some caution before placing fresh bullish bets.
The USD/CAD pair attracts fresh buyers following an intraday dip to the 1.3930 area on Thursday and builds on the overnight bounce from the weekly low. The momentum lifts spot prices to the 1.3970 region, or the highest since December 2025, during the first half of the European session, and is sponsored by an intraday decline in Crude Oil prices, which tends to benefit the commodity-linked Loonie.
Despite renewed hostilities between the US and Iran, reports suggest that diplomatic efforts towards a permanent peace deal are still on track. This keeps hopes alive for a resolution to end the over three-month-old war, which, in turn, is seen as a key factor exerting downward pressure on Crude Oil prices. Adding to this, the Bank of Canada (BoC) maintained a dovish stance as policymakers are prioritizing a sluggish economy over inflation threats. This, in turn, is seen exerting heavy pressure on the Canadian Dollar (CAD) and acting as a tailwind for the USD/CAD pair.
Meanwhile, the aforementioned supporting factors largely offset a modest US Dollar (USD) downtick, led by easing concerns over a runaway inflation spiral following the release of a soft US Consumer Price Index (CPI) on Wednesday. Nevertheless, traders are still pricing in a 70% chance that the US Federal Reserve (Fed) will raise interest rates by the end of this year. This, along with persistent geopolitical uncertainties stemming from the ongoing Middle East crisis, should act as a tailwind for the USD and back the case for a further appreciation for the USD/CAD pair.
Even from a technical perspective, spot prices hold well above the 200-day Simple Moving Average (SMA), retaining a bullish near-term bias and keeping the broader uptrend supported. Moreover, momentum indicators remain constructive but slightly stretched. In fact, the Moving Average Convergence Divergence (MACD) indicator stays in positive territory, hinting that upside pressure persists. That said, the Relative Strength Index (14) is hovering in overbought territory near 74, pointing to the growing risk of a near-term corrective pullback.
On the downside, initial support is located at the 1.3968 area, with a deeper pullback exposing the 200-day SMA at 1.3816, where dip-buying interest could re-emerge. As long as USD/CAD holds above this moving average, the technical structure favors further gains after any consolidation, though overbought readings warn that fresh bullish follow-through may be increasingly selective at current levels.
(The technical analysis of this story was written with the help of an AI tool.)
USD/CAD daily 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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