Canadian Dollar hits fresh low since August 5, seems vulnerable vs bullish USD
- USD/CAD enters a bullish consolidation phase as a modest bounce in oil prices underpins the Loonie.
- Hawkish comments from BoC’s Macklem further support the CAD, though the upside seems limited.
- US-Canada trade tensions, along with a firmer USD, act as a tailwind for spot prices and favor bulls.
The USD/CAD pair touches a fresh high since August 5 during the Asian session on Tuesday, though it lacks follow-through buying and remains below mid-1.4000s.
Crude oil prices bounce off a one-and-a-half-week low, which, along with hawkish comments from the Bank of Canada (BoC) Governor, Tiff Macklem, support the commodity-linked Loonie and act as a headwind for the USD/CAD pair. Speaking at an event in Nova Scotia, Macklem warned that persistently high energy prices could push inflation higher, leaving the central bank balancing between holding or raising interest rates.
Macklem added that the unpredictability of US trade policy has heightened uncertainty for businesses and could set back the recent progress of the Canadian economy. In fact, the US imposed 50% tariffs on approximately $20 billion worth of Canadian goods on August 22. Meanwhile, Canada implemented retaliatory tariffs ranging from 15% to 50% on roughly $20 billion worth of US goods on September 8, fueling trade-war fears.
This, in turn, fails to assist the Canadian Dollar (CAD) in attracting any meaningful buyers. Adding to this, the underlying bullish sentiment surrounding the US Dollar (USD) suggests that the path of least resistance for the USD/CAD pair is to the upside. The US Federal Reserve's (Fed) hawkish outlook, signaling at least one more rate hike this year, and escalating tensions in the Middle East keep the USD near its highest level since late July.
Dollar support builds as Fed dots reinforce hawkish bias
Analysts at HSBC note that the USD “strengthened following the decision,” even though the 25bp move was widely anticipated. They argue that “the unanimous vote reinforced confidence in the Committee’s tightening bias,” with the updated projections showing that “the median 2026 ‘dot’ implies one additional hike before year-end,” and “a significant minority of participants still anticipating a further rate rise in 2027.” HSBC characterises this projected policy path as “more hawkish than a ‘one-and-done’ outcome but [it] remains below current market pricing,” meaning they “do not expect a major repricing of rate expectations or the USD.”
Meanwhile, the recent pullback in crude oil prices eased inflationary concerns, leading to a further decline in US bond yields and holding back USD bulls from placing aggressive bets. Investors now look forward to a crucial meeting between US President Donald Trump and his Chinese counterpart Xi Jinping on Thursday. This, along with fresh developments surrounding the Middle East crisis, should provide a fresh impetus to the USD/CAD pair.
USD/CAD daily chart
Technical Analysis
The USD/CAD pair keeps a bullish near-term bias above the 100-day Simple Moving Average (SMA) at 1.3953 and the mid-range 50.0% Fibonacci retracement at 1.3992. Spot prices press into overhead Fibonacci resistance, with the 61.8% retracement at 1.4052, which, if cleared, would open the way toward the next resistance cluster around the 78.6% retracement at 1.4138, where bullish momentum would face a more substantial test.
On the downside, immediate demand is seen at the 50.0% retracement at 1.3992, followed by the 100-day SMA at 1.3953, where a deeper pullback could find buyers ahead of the 38.2% level at 1.3932 and the 23.6% retracement at 1.3857.
(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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