USD/CAD Price Forecast: Buyers retain the upper hand even as momentum weakens
- USD/CAD eases as higher Oil prices lend support to the Canadian Dollar.
- Diverging Fed and BoC monetary policy expectations limit the Loonie's upside.
- Technically, USD/CAD remains in a bullish trend above key moving averages.
USD/CAD edges lower on Tuesday even as the US Dollar (USD) holds firm, with the Canadian Dollar (CAD) drawing support from a modest rebound in crude Oil prices following renewed attacks on commercial vessels near the Strait of Hormuz. At the time of writing, the pair is trading around 1.4188.
West Texas Intermediate (WTI) crude Oil is trading around $70.30, up nearly 2.50% on the day.
Meanwhile, the US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is treading water near 101.00.
However, diverging monetary policy expectations between the Federal Reserve (Fed) and the Bank of Canada (BoC) could limit further gains in the Canadian Dollar (CAD).
Markets continue to expect the Fed to raise interest rates later this year to bring inflation back to its 2% target, even as softer-than-expected US labor market data have reduced expectations of a near-term rate hike.
The BoC is widely expected to leave interest rates unchanged for the remainder of the year, while keeping the door open to rate cuts if inflation continues to ease.
Technically, the broader outlook remains bullish, with USD/CAD consolidating in a two-week range near levels last seen in April 2025.
Technical Analysis:
On the daily chart, USD/CAD holds well above the 100-day and 200-day Simple Moving Averages (SMAs), which reinforces a bullish near-term bias. Price is also holding over prior horizontal support at 1.4000 and the more immediate floor at 1.4150, keeping the pair well-supported despite a mild loss of momentum signaled by the Relative Strength Index (RSI) easing from overbought territory near 68 and a softening Moving Average Convergence Divergence (MACD) line slipping modestly below zero.
On the downside, initial support is seen at 1.4150, with a stronger structural cushion at the 1.4000 horizontal level. Below these, the 200-day SMA at 1.3845 and the 100-day SMA at 1.3822 form a deeper demand zone that would likely underpin any more pronounced pullback while the broader bullish structure remains intact.
(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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