USD/CAD Price Forecast: Trades near 1.4200 after breaking below nine-day EMA
- USD/CAD may test the immediate resistance at the nine-day EMA of 1.4224.
- The 14-day Relative Strength Index at 58.6 shows positive momentum.
- The pair may fall toward the ascending channel bottom around 1.4150.
USD/CAD depreciates after posting modest gains the previous day, trading around 1.4210 during Asian hours on Thursday. The technical analysis of the daily chart indicates that the price is remaining within the ascending channel pattern, suggesting an ongoing bullish bias.
The USD/CAD pair is maintaining a bullish near-term bias as spot holds above the 50-day Exponential Moving Average (EMA). Price is now just under the short-term nine-day EMA, which caps the immediate topside, while the 14-day Relative Strength Index (RSI) at 58.6 stays in positive territory, hinting that dips are more likely to attract buyers than trigger a deeper reversal. The latest reading of the FXS Fed Sentiment Index at 128.17 suggests a subdued but still supportive dollar backdrop, reinforcing the constructive tone.
The USD/CAD pair may rebound and test the immediate resistance at the nine-day EMA of 1.4224, followed by the 18-month high of 1.4299, recorded on October 14. A successful break above this level would support the pair to test the top trendline of the ascending channel around 1.4430, followed by the psychological level of 1.4500.
On the downside, the USD/CAD pair may navigate the region around the bottom trendline of the ascending channel around 1.4150, followed by the 50-day EMA of 1.4073.
Daly leans hawkish but urges patience as markets digest CPI
The FXS Speechtracker score of 6.8/10 marks a modest hawkish tilt relative to the historical average of 6.1/10, underscoring a firmer focus on inflation risks. Daly’s emphasis on gas-driven headline CPI, stubborn core inflation, and the likelihood of more rate hikes, coupled with a preference for deliberate timing over rash action, signals a bias toward further tightening while acknowledging uncertainty over how inflation shocks will evolve. The reassurance that markets have calmed after the initial CPI reaction and the stress on clear, accountable communication suggest the Fed sees markets as aligned with its policy narrative, supporting a steady Dollar backdrop.
The FXS Fed Sentiment Index slipped by 0.84 points to 128.17, indicating a slight pullback in perceived hawkishness. Despite the decline, the index remains well above the neutral 100 mark, confirming that Fed rhetoric stays firmly in hawkish territory even as the immediate tightening impulse moderates, consistent with the nuanced tone captured by the FXS Speechtracker.
(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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