USD/CAD Price Forecast: Trades around 1.4000 within falling wedge
- USD/CAD may fall toward the falling wedge bottom around 1.3940.
- The 14-day Relative Strength Index slipping to around 39 hints at prevailing bearish momentum.
- The primary barrier lies at the nine-day EMA of 1.4042.
USD/CAD remains subdued for the second successive day, trading around 1.3990 during European hours on Thursday. The technical analysis of the daily chart shows that the pair price is remaining within the falling wedge pattern, suggesting selling momentum is losing strength, signaling a potential bullish breakout.
The USD/CAD pair is keeping a bearish near-term bias as it holds beneath both the nine- and 50-period Exponential Moving Averages (EMAs). The pair has retreated from recent highs with the 14-day Relative Strength Index (RSI) slipping to about 39, which hints at prevailing bearish momentum rather than outright oversold conditions, while the FXS Fed Sentiment Index around 142 suggests a softer policy backdrop that is failing to support the exchange rate at this stage.
On the downside, the USD/CAD pair may find initial support at the lower boundary of the falling wedge around 1.3940. 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 may rebound and test the primary resistance confluence around the nine-day EMA of 1.4042, followed by the 50-day EMA at 1.4060 and the upper boundary of the falling wedge around 1.4080. 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.
BoC hike seen as start of a cautious tightening phase
Analysts at ING note that the Bank of Canada’s latest move was broadly anticipated, with the BoC having “raised rates by 25bp to 2.50% yesterday, in line with market expectations.” They add that “stronger activity and growing concerns about cost pass-through suggest this is unlikely to be a one-and-done move,” even as policymakers emphasised that they “will proceed carefully,” underscoring a measured approach to any further tightening.
(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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