USD/CAD Price Forecast: Might struggle to build on strength beyond 1.3800 amid mixed cues

The USD/CAD pair prolongs its recent recovery move from the 1.3640 area, or a five-month low touched on December 26, for the fifth straight day and climbs to a two-week high during the first half of the European session on Monday. Crude Oil prices turn lower following an initial reaction to rising geopolitical tensions and slide to a two-week low amid expectations of adequate global supplies. This, in turn, undermines the commodity-linked Loonie, which, along with sustained US Dollar (USD) buying, turns out to be a key factor acting as a tailwind for the currency pair.

The US Army's Delta Force – an elite special forces unit – attacked Venezuela and captured its President Nicolás Maduro, along with his wife, on Saturday. This comes amid heightened political tensions between Saudi Arabia and the UAE over a conflict in Yemen, fueling concerns about supply disruptions. Analysts, however, expect that the US control of Venezuela’s oil was likely to increase global supplies. Moreover, worries about weakening fuel demand fail to assist Crude Oil prices to capitalize on modest intraday gains and continue to weigh on the Canadian Dollar (CAD).

Meanwhile, rising geopolitical tensions benefit the Greenback's status as the global reserve currency and push it to a nearly four-week high, providing an additional boost to the USD/CAD pair. The upside for the USD, however, remains capped amid dovish US Federal Reserve (Fed) expectations. Investors are pricing in the possibility that the Fed will lower borrowing costs in March and may deliver another rate cut later this year. Moreover, expectations that the Trump-aligned new Fed chair will push for aggressive action hold back the USD bulls from placing fresh bets.

Adding to this, the Bank of Canada's (BoC) hawkish signal could offer some support to the CAD and contribute to keeping a lid on the USD/CAD pair. In fact, BoC Governor Tiff Macklem had said that the current rate is at about the right level to give the economy a boost through a structural transition. This marks a significant divergence in comparison to the Fed, which, in turn, makes it prudent to wait for strong follow-through buying before confirming that spot prices have bottomed out in the near term and positioning for any further appreciating move.

Traders now look forward to important US macro releases scheduled at the beginning of a new month for more cues about the Fed's rate-cut path and some meaningful impetus. This week's rather busy US economic docket kicks off with the release of the ISM Manufacturing PMI later this Monday and culminates with the closely watched US monthly Nonfarm Payrolls report on Friday. The latter will be accompanied by the monthly Canadian employment details, which could also help in determining the next leg of a directional move for the USD/CAD pair.

USD/CAD 4-hour chart

Technical Analysis:

An intraday breakout through the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 23.6% Fibonacci retracement level of the November-December downfall favors the USD/CAD bulls. The Moving Average Convergence Divergence (MACD) shows positive readings and an expanding histogram, indicating the MACD line above the Signal line and strengthening bullish momentum. The Relative Strength Index (RSI) sits at 74, overbought. This suggests that any subsequent move up beyond the 1.3800 mark might confront some resistance near the 1.3830 region, or the 38.2% Fibo. level.

The 200-period SMA at 1.3871 caps the topside, and the 100-period SMA at 1.3743 offers nearby support. With MACD firm and RSI overbought, any extension would require a clear break of resistance to avoid fatigue. A move above the 38.2% retracement at 1.3828 would put the 200-period SMA in focus, whereas failure to clear that barrier could keep the pair consolidating above the 23.6% retracement at 1.3756.

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