USD/CAD Price Forecast: Seems vulnerable amid bullish Oil prices, renewed USD selling

The USD/CAD pair remains under some selling pressure for the third consecutive day and drops to a fresh low since October 2024, closer to the 1.3500 psychological mark, during the early European session on Thursday. Crude Oil prices advance to a four-month peak, underpinning the commodity-linked Loonie and weighing on the currency pair amid a broadly weaker US Dollar (USD). Moreover, the fundamental backdrop suggests that the path of least resistance for spot prices is to the downside.

On Wednesday, US President Donald Trump urged Iran to come to the table and make a deal on nuclear weapons, or future US attacks would be far worse. In response, Iran threatened to strike against the US, Israel, and those who support them. This raises the chances that the US may carry out a military attack on Iran, which could disrupt Oil supply from a key Middle Eastern producer. Moreover, the Energy Information Administration reported on Wednesday that US oil inventories shrank more than estimated, by 2.295 million barrels in the week to January 23. Adding to this, unplanned outages in Kazakhstan and a disruption of crude production in the US due to Winter Storm Fern lend support to Crude Oil prices.

Apart from this, the diverging interest rate paths between the Bank of Canada (BoC) and the US Federal Reserve (Fed) should benefit the Canadian Dollar (CAD), validating the negative outlook for the USD/CAD pair. In fact, the BoC said on Wednesday that elevated levels of economic and geopolitical uncertainty were behind its decision to hold interest rates for the second time on Wednesday. The BoC further added that the uncertainty is bleeding into economic predictions, which now run from cuts to hikes to holds for 2026. In contrast, investors are still pricing in at least two more interest rate cuts by the US central bank this year despite relatively hawkish comments from Fed Chair Jerome Powell.

During the post-meeting press conference, Fed Chair Jerome Powell said that inflation was still well above the 2% target. This follows the central bank's left policy rates unchanged – marking its first on-hold decision after three cuts last year. However, two Fed Governors – Stephen Miran and Christopher Waller – dissented in favor of a 25 basis points cut. Moreover, the muted market reaction, however, suggests that investors remain concerned about threats to the Fed's independence amid a criminal investigation of Powell by the Department of Justice and an evolving effort to fire Governor Lisa Cook. This, in turn, keeps the USD bulls on the defensive and backs the case for a further depreciation for the USD/CAD pair.

USD/CAD daily chart

Technical Analysis:

Against the backdrop of the recent failure to build on strength beyond the 200-day Exponential Moving Average (EMA), this week's breakdown below the 1.3670-1.3660 horizontal support was seen as a key trigger for the USD/CAD bears. The Moving Average Convergence Divergence (MACD) line is below the Signal line and under the zero mark, while the histogram expands negatively, indicating building bearish pressure. RSI at 24 (oversold) flags stretched downside conditions without a clear stabilization.

The bearish bias persists while USD/CAD trades beneath the declining 200 EMA, with rallies limited by that resistance. A stabilization in MACD and a contraction in the negative histogram would be needed to ease pressure. RSI recovering from oversold back toward the 30–40 band could open room for a corrective bounce, but failure to improve momentum would keep the downtrend intact.

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