USD/CAD Price Forecast: Holds gains above 1.4150, while technicals flag overbought risk

The USD/CAD pair trades in positive territory near 1.4155 during the early European trading hours on Monday. The US Dollar (USD) edges higher against the Canadian Dollar (CAD) as hawkish Federal Reserve (Fed) expectations build. Traders await the Fedspeak for more clues about the US interest rate outlook ahead of the highly-anticipated Nonfarm Payrolls (NFP) data later this week.

Cleveland Fed President Beth Hammack said on Friday that she is worried that persistently high inflation risks conditioning the American public to accept elevated prices as the ‌norm, adding the central bank cannot let that happen. Meanwhile, Philadelphia Fed President Anna Paulson said, "Some modest further tightening may be warranted.”

Hawkish remarks from Fed officials have fueled speculation about additional interest rate increases, supporting the Greenback. Currently, markets are seeing a 65% probability of a rate hike from the Fed when the central bank meets next at the end of October, according to the CME FedWatch tool.

On the other hand, rising crude oil prices could underpin the commodity-linked Loonie. The WTI price climbed on Monday after US President Donald Trump rejected a peace deal with Iran to resolve their conflict and reopen the Strait of Hormuz. It is worth noting that Canada is a major oil-exporting country, and high crude oil prices generally have a positive impact on the CAD.

BoC expectations in focus as US-Canada spreads weigh on the Dollar

Strategists at Scotiabank point out that upcoming Bank of Canada communication will be closely watched, with "Dep. Gov. Gravelle is scheduled to speak on Tuesday, and Sr. Dep. Gov. Wilkins will speak on Thursday." They note that market pricing for near-term policy moves remains cautious, as "pricing for October is relatively light, pricing a 50/50 chance of a 25bpt hike while December is priced for a cumulative 34bpts of tightening."

Against this backdrop, Scotiabank highlights that "wider US-Canada spreads have been a major headwind for the CAD over the past couple of weeks," but argue that the recent move "feels somewhat stretched with limited scope for further tightening in Fed expectations while the BoC feels somewhat underpriced." This combination of compressed policy expectations and upcoming BoC speeches leaves room, in their view, for Canadian Dollar dynamics to shift if domestic rate prospects are repriced higher.

Hammack flags inflation mindset risk as Fed keeps policy stance restrictive

Fed’s Hammack delivered a moderately hawkish message, with a FXS Speechtracker score of 7.2/10, slightly softer relative to the historical average of 7.5/10. The emphasis on the “biggest risk” being the formation of an inflationary mindset, alongside concerns about demand and capital expenditure pressures, underscores a strong focus on preventing a de-anchoring of inflation expectations even as growth and the job market remain resilient. The insistence that policy must stay at a restrictive stance to lower inflation signals limited appetite for near-term easing in the United States Dollar backdrop.

The FXS Fed Sentiment Index slipped by 0.34 points to 147.72, indicating a modest pullback in perceived hawkishness following the speech. Despite the decline, the index remains firmly in hawkish territory above 100, showing that Fed communication is still skewed toward inflation-fighting resolve even as the tone cools slightly compared to the FXS Speechtracker baseline.

Technical Analysis: USD/CAD keeps a bullish vibe amid overbought condition

In the daily chart, USD/CAD maintains a bullish near-term bias as spot holds above the 100-day simple moving average (SMA) and the Bollinger middle band. Price is pressing into the upper half of the Bollinger envelope, while the Relative Strength Index (14) at 73 suggests overbought conditions, hinting that upside momentum is stretched even as the broader trend remains supported.

On the topside, immediate resistance level is located at the Bollinger upper band around 1.4190, where buying pressure could start to fade. The next hurdle to watch is the June 24 high of 1.4248, en route to the April 1, 2025 high of 1.4415. 

On the downside, initial support level is seen at the July 27 high of 1.4070, followed by the 1.4000 psychological level. Any follow-through selling below this level could expose the 100-day SMA at 1.3970 and then the Bollinger middle band near 1.3945 and the Bollinger lower band at 1.3700. 

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