USD/CAD steadies as the BoC holds and Iran threat sparks whipsaw
- The BoC held its policy rate at 2.25% for a fourth straight meeting, while Macklem warned policy may need to be nimble.
- Trump issued a fresh Iran threat with an AI-generated image on Truth Social, saying Tehran 'better get smart soon!'
USD/CAD traded essentially flat on Wednesday, last seen near 1.3680 after a brief whipsaw spike to about 1.3710 was quickly retraced. The session was otherwise subdued, with the pair holding a tight 40-pip band through most of the European morning before a sharp upside burst printed the intraday high; the move was faded inside the same hour. The rejection from the highs leaves a clear upper wick close to the top of the two-day range built off Tuesday's bounce from levels close to 1.3600.
The Bank of Canada (BoC) kept its overnight rate target at 2.25% for a sixth straight meeting, matching consensus and extending the pause begun after the October 2025 cut. Governor Tiff Macklem told reporters the Governing Council agreed to "look through" the immediate inflation impact of higher energy prices tied to the Iran war, but cautioned that policy "may need to be nimble" given the wide range of possible outcomes. Under the Bank's baseline scenario in the quarterly Monetary Policy Report (MPR), which assumes Crude Oil falls back to $75 per barrel by mid-2027, "changes in the policy rate can be expected to be small," Macklem said; he warned, however, that if elevated Crude prices bleed into broader inflation, "there may be a need for consecutive increases in the policy rate."
Read more: Inflation expectations are not as well anchored as they were before Covid
On the US side, the session's whipsaw came after President Donald Trump posted on Truth Social shortly after 4 a.m. ET, threatening fresh action against Iran with an AI-generated image of himself holding a rifle in front of explosions and the caption "No More Mr. Nice Guy." Trump wrote that Iran "can't get their act together" and "better get smart soon," adding that Tehran does not know how to sign a nonnuclear deal. The post landed with US-Iran talks stalled and the Strait of Hormuz blockade still effectively halting roughly 20% of global oil shipments; West Texas Intermediate (WTI) Crude pushed above $100 per barrel, supporting the commodity-linked Loonie and capping any sustained move higher in USD/CAD even as the headline briefly bid the safe-haven Greenback. Focus now turns to the Federal Reserve (Fed) decision at 18:00 GMT, with the federal funds rate widely expected to stay in the 3.50% to 3.75% range.
USD/CAD 15-minute chart
Technical Analysis
In the fifteen-minute chart, USD/CAD trades at 1.3678. The pair holds marginally above the daily open at 1.3677, leaving a neutral intraday bias as price consolidates in a tight range. The latest Stochastic RSI reading near 47.95 sits close to midline territory, hinting at balanced short-term momentum without a clear directional conviction for now.
On the downside, the immediate level to watch is the day’s open at 1.3677, which acts as nearby support and a pivot for very short-term sentiment. A sustained break beneath this floor would expose lower intraday levels, while holding above it could keep USD/CAD locked in range-bound trade until a fresh momentum impulse emerges.
(The technical analysis of this story was written with the help of an AI tool.)
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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