USD/CAD gathers strength to near 1.3700 as safe-haven demand persists
|- Canadian Dollar softens around 1.3695 amid weak Q4 GDP and renewed US Dollar demand.
- The BoC held rates at 2.25% in January, with the next decision on March 18; most analysts expect another hold as rising energy costs complicate the inflation outlook.
- WTI crude surged more than 2.35% on Wednesday follwing the closure of the Strait of Hormuz, lifting the commodity-linked Loonie despite a 0.6% contraction in Canada's Q4 GDP.
USD/CAD edges higher to near 1.3695 during the early European trading hours, bolstered by broader US Dollar (USD) bid. The pair has been trending lower since the January highs close to 1.3930, carving out a series of lower highs and lower lows. Tuesday's candle printed a narrow body, pointing to indecision around the 1.3660 area.
A surge in Crude Oil prices is the dominant short-term driver for the Canadian Dollar (CAD). US and Israeli strikes on Iran over the weekend prompted Iran's Revolutionary Guard to declare the Strait of Hormuz closed, halting tanker traffic through a chokepoint that carries roughly 20% of global oil consumption. West Texas Intermediate (WTI) Crude jumped more than 2.35% on Wednesday, with Brent trading around $79 per barrel. As a major oil exporter, Canada benefits directly from higher energy prices, and the spike gave the Loonie a lift despite a weak domestic backdrop.
The Bank of Canada (BoC) held rates at 2.25% in January, continuing the pause that began in December after nine cuts since June 2024 that brought the policy rate down from 5%. Fourth-quarter Gross Domestic Product (GDP) confirmed a 0.6% contraction, the weakest since 2020, though February's manufacturing Purchasing Managers Index (PMI) hit a 13-month high of 51. The next BoC decision falls on March 18, with markets broadly expecting another hold.
USD/CAD daily chart
Technical Analysis
In the daily chart, USD/CAD trades at 1.3661. The near-term bias is mildly bearish as spot holds below the declining 50-day exponential moving average near 1.3700 and remains well under the 200-day average around 1.3800, keeping the broader downswing intact. Price has been unable to sustain rebounds toward the 50-day average in recent sessions, signalling persistent selling interest on approaches to that dynamic cap. The Stochastic oscillator has turned lower from overbought territory above 80 and now slips toward the 70 region, indicating fading upside momentum and increasing risk of a deeper pullback within the recent range.
Initial resistance emerges at the 50-day EMA around 1.3715, with a daily close above this level needed to open a recovery toward the 1.3790–1.3800 area, where the 200-day EMA reinforces a stronger barrier. On the downside, immediate support stands at the recent reaction low near 1.3640, followed by the mid-November trough around 1.3558. A break below 1.3558 would confirm renewed bearish pressure and expose the 1.3490 zone as the next target, while only a sustained move above 1.3800 would challenge the prevailing downside bias.
In the weekly chart, USD/CAD trades at 1.3661. The near-term bias is neutral with a slight downside tilt as the pair eases from the 1.4000 area and loses altitude from recent highs while still holding well above the rising 200-week EMA near 1.3600. Price action shows a sequence of lower weekly highs from the 1.4000–1.4100 region, indicating fading upside momentum. The stochastic oscillator remains in mid-range after rolling lower from overbought territory, signaling waning bullish pressure rather than an outright bearish reversal.
Initial resistance emerges at 1.3730, where recent weekly supply aligns with the lower bound of the prior 1.3900–1.4000 consolidation, followed by a more decisive barrier at 1.3915 and then 1.4000. On the downside, immediate support is at 1.3615, just above the 200-week EMA, with a break exposing the next cushion at 1.3550 and then 1.3450. A weekly close above 1.3730 would revive bullish momentum toward 1.3915, while sustained trading below 1.3615 would strengthen the corrective tone and open a deeper pullback toward the mid-1.34s.
(The technical analysis of this story was written with the help of an AI tool.)
(This story was corrected on March 4 at 09:33 GMT to say that the BoC continued in January the pause in interest rate cuts that began in December, after nine cuts since June 2024, not after nine consecutive cuts.)
Bank of Canada FAQs
The Bank of Canada (BoC), based in Ottawa, is the institution that sets interest rates and manages monetary policy for Canada. It does so at eight scheduled meetings a year and ad hoc emergency meetings that are held as required. The BoC primary mandate is to maintain price stability, which means keeping inflation at between 1-3%. Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Canadian Dollar (CAD) and vice versa. Other tools used include quantitative easing and tightening.
In extreme situations, the Bank of Canada can enact a policy tool called Quantitative Easing. QE is the process by which the BoC prints Canadian Dollars for the purpose of buying assets – usually government or corporate bonds – from financial institutions. QE usually results in a weaker CAD. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The Bank of Canada used the measure during the Great Financial Crisis of 2009-11 when credit froze after banks lost faith in each other’s ability to repay debts.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Bank of Canada purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the BoC stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Canadian Dollar.
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