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USD/CAD Price Forecast: Bears retain control amid Iran jitters, ahead of BoC/Fed

  • USD/CAD attracts heavy selling for the second straight day amid a combination of negative factors.
  • Hopes for US-Iran peace talks and receding hawkish Fed expectations weigh on the safe-haven USD.
  • Elevated Crude Oil prices underpin the Loonie and further exert downward pressure on spot prices.

The USD/CAD pair is seen extending its retracement from the 1.3715 resistance, or over a one-week set on Friday, and drifting lower for the second consecutive day. The downward trajectory drags spot prices closer to the 1.3600 mark, or over a two-month low, during the first half of the European session and is influenced by a combination of factors. The US Dollar (USD) remains under some selling pressure amid renewed hopes for US-Iran peace talks. Adding to this, global supply concerns assist Crude Oil prices to regain positive traction at the start of a new week, which underpins the commodity-linked Loonie and further exerts pressure on the currency pair.

US President Donald Trump has canceled envoys Steve Witkoff and Jared Kushner's visit to Pakistan, aimed at advancing Iran war negotiations, saying that Iran has "offered a lot, but not enough." Meanwhile, Iran reportedly gave the ‌US a new proposal on reopening the Strait of Hormuz and ending the war. According to Axios, Iran offered to hold nuclear talks once the US naval blockade of Iranian ports is lifted. This helps ease market worries about a further escalation of tensions in the Middle East, which, along with receding bets for a more hawkish US Federal Reserve (Fed), dent the Greenback's reserve currency status.

Markets have recently begun to re-price a potential rate cut by the US central bank amid optimism over diplomatic efforts to end the US-Iran war, which dampens fears of sustained and high inflation on the back of elevated energy prices. According to the CME Group's FedWatch Tool, traders still see a roughly 35% chance that the Fed will lower borrowing costs by the end of this year. However, continued disruptions to supplies through the critical Strait of Hormuz remain supportive of elevated Crude Oil prices and keep inflation risks in play. This might hold back the USD bears from placing aggressive bets and limit losses for the USD/CAD pair.

Traders might also opt to move to the sidelines ahead of this week's key central bank event risks. The Bank of Canada (BoC) is scheduled to announce its policy decision on Wednesday, and will be followed by the outcome of a two-day FOMC meeting. Investors will look for fresh cues about the Fed's policy path, which will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the USD/CAD pair. Furthermore, developments surrounding the Middle East crisis might continue to infuse volatility in the global financial markets and the currency pair, warranting caution before placing directional bets.

USD/CAD 1-hour chart

Chart Analysis USD/CAD

Technical Analysis:

Against the backdrop of last week's failed attempt to clear the 200-hour Exponential Moving Average (EMA) , Monday's break below the previous monthly swing low, around the 1.3640 area, could be seen as a key trigger for the USD/CAD bears. Adding to this, the Moving Average Convergence Divergence (MACD) indicator remains in negative territory on the hourly chart, with the line below its signal and a modestly negative histogram, suggesting persistent downside pressure.

Meanwhile, the Relative Strength Index (RSI) at 19 signals oversold conditions that could slow the sell-off rather than reverse it immediately. Hence, any attempted recovery is more likely to confront meaningful resistance near the 200-period EMA at 1.3701. Bearish traders are likely to retain control while the USD/CAD pair price trades below this hurdle. A sustained strength beyond the aid handle is needed to ease immediate downside risks, while the oversold RSI warns that fresh selling at current levels might see diminishing follow-through.

(The technical analysis of this story was written with the help of an AI tool.)

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Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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