USD/CAD Price Forecast: Moves above 1.4050 to target moving averages
- USD/CAD may fall toward the lower boundary of the falling wedge around 1.3950.
- The 14-day Relative Strength Index hovers around 45, reflecting bearish momentum.
- The pair is testing the immediate resistance confluence at the 50- and nine-day EMAs of 1.4066 and 1.4067, respectively.
USD/CAD gains ground for the third consecutive day, trading around 1.4060 during European hours on Wednesday. The Bank of Canada (BoC) is expected to deliver a 25-basis-point interest rate hike later in the day.
The technical analysis of the daily chart shows that the pair price is remaining within the falling wedge pattern, indicating a potential bullish breakout as selling momentum weakens.
The USD/CAD pair is holding a bearish near-term bias as spot languishes just under a tight cluster of Exponential Moving Averages (EMAs), with the 50-day EMA near 1.4066 and the nine-day EMA around 1.4068 acting as immediate overhead caps.
The USD/CAD pair has slipped beneath these trend gauges after failing to sustain recent highs, while the 14-day Relative Strength Index (RSI) around 45 suggests an ongoing bearish momentum rather than outright oversold conditions.
On the downside, the USD/CAD pair may fall toward the lower boundary of the falling wedge around 1.3950. A break below the wedge could put downward pressure on the pair to navigate the region around the five-month low of 1.3732, recorded on May 21. Further support lies at 1.3481, the lowest since October 2024.
The USD/CAD pair is testing the immediate resistance confluence at the 50- and nine-day EMAs of 1.4066 and 1.4067, respectively, aligned with the upper boundary of the falling wedge. Further upside above this confluence would open the door for the pair to explore the region around nearly an 18-month high of 1.4299, recorded on October 14.
Fed seen on hold now but December hike still in play
Strategists at ABN Amro expect the Fed to stay sidelined at this week’s meeting, flagging “some risk of hawkish dissents” even as policymakers refrain from moving rates. They acknowledge that “inflation remains too hot,” but argue that “declining breadth and a cooler labour market give the Fed room to wait.” Reflecting that shift in tone, they note that markets have “sharply reduced the probability of an October hike, and December is no longer fully priced.” Nonetheless, ABN Amro still look for “one final 25bp hike in December, followed by an extended hold.”
BoC meeting seen as live event with scope for surprise
Analysts at MUFG/BTMU highlight that market pricing for today’s BoC decision currently implies “an 80% probability of a rate hike,” a level they argue “is not quite in done-deal territory and there is scope for a surprise.” They suggest that, while investors lean toward another move from the BoC, the outcome remains sufficiently uncertain to keep the meeting a live event for markets.
(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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