USD/CAD Price Forecast: Drifts higher above 1.4250, remains bullish but overbought
- USD/CAD gains momentum to near 1.4280 in Monday’s early European session.
- Traders trim bets on Fed rate hikes after weaker jobs data.
- The pair keeps a bullish vibe; a temporary sell-off cannot be ruled out amid overbought conditions.
- The first upside barrier emerges at 1.4350; the initial support level is located at 1.4221.
The USD/CAD pair gathers strength to around 1.4280 during the early European trading hours on Monday. Oil prices fall as rising crude exports from the Middle East and G7 nations' release of oil add to supplies, weighing on the commodity-linked Canadian Dollar (CAD) against the US Dollar (USD). It is worth noting that Canada is a major oil-exporting country, and low crude oil prices generally have a negative impact on the Loonie.
However, recent soft US jobs data sharply reduced expectations of a Federal Reserve (Fed) rate hike in October. This, in turn, could undermine the Greenback. Data released by the US Bureau of Labor Statistics (BLS) on Friday showed that US NFP rose by 29K in September, versus the 133K increase seen in August (revised from 162K). This figure came in worse than the market expectation of 90K.
Traders currently see about a 22.1% probability of a US rate hike this month, compared to around 70% earlier in the week, the CME FedWatch Tool showed.
Canada curve jolts higher as TD Securities sees scope for year-end moderation
According to TD Securities, “the wheels fell off the bus in rates this week,” with the Canadian mid-curve under heavy pressure as the “10-year peaked back above 4% and 2s10s steepened back out to early-September levels.” Analysts highlight that “cross-market and outright moves continue to diverge, as 10s sit near a 2-year high and CAN-US 10s hit a 1-year low,” underscoring the extent of the recent dislocation. They also point to a notable shift in the long-end, where “10s30s saw a meaningful move steeper from very flat levels, with 10s underperforming the front-end but outperforming the move in duration.”
Despite the sharp repricing, TD Securities stresses that “while the belly of the curve is at elevated levels relative to recent history, we see yields moderating into year-end by 10-15 bps.” In their view, “cross-market moves should be the focus in duration this week, with a 6bps move tighter by the end of the week,” as relative performance between Canada and the US becomes increasingly important for positioning along the 10- to 50-year sector.
Logan’s hawkish tilt lifts Fed expectations and supports the Dollar
Fed’s Logan delivers a notably more hawkish message, with a 9.2/10 FXS Speechtracker score standing well above the 8.1/10 historical average, underscoring a stronger tightening bias relative to the established baseline. The emphasis that higher yields may reflect increased term premiums, potentially reducing the need for additional tightening, sits in tension with explicit calls for at least several more rate hikes and a policy rate increase of 50 bps or more, reinforcing a narrative of persistent restrictive ambitions to secure the 2% inflation target and underpinning Dollar support.
The FXS Fed Sentiment Index rises by 1.68 points to 136.59, firmly in hawkish territory and signaling a clear shift toward stronger tightening expectations following Logan’s remarks. This elevated index level, far above the neutral 100 mark, confirms that the latest speech meaningfully amplifies perceived Fed resolve compared to the established baseline captured by the FXS Speechtracker.
Technical Analysis: USD/CAD retains a constructive bias amid overbought RSI condition
In the daily chart, USD/CAD extends its advance well above the 100-day simple moving average (SMA) and the 20-day Bollinger middle band, which together underpin a clear bullish near-term bias. Price is now pressing toward the upper Bollinger band at, while the Relative Strength Index (14) at 79.3 sits deep in overbought territory, suggesting the upside remains dominant but increasingly vulnerable to a corrective pullback rather than a fresh impulsive leg higher.
On the topside, immediate resistance is located at the 20-day Bollinger upper band near 1.4350, where any rejection could trigger a pause or consolidation in the uptrend. Any follow-through buying above this level could pave the way to the April 1 high, 2025 of 1.4415, en route to the March 3, 2025 high of 1.4542.
On the downside, initial support is seen at the October 1 low of 1.4221, followed by the July 28 high of 1.4129 and the Bollinger middle band around 1.4045. The key contention level to watch is the 1.4000 level, representing the 100-day SMA and psychological mark.
(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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