USD/CAD Price Forecast: Consolidates near two-week high as bulls await move beyond 1.3700

USD/CAD consolidates its recent strong gains to a nearly two-week top, touched this Thursday.
The USD preserves hawkish FOMC Minutes-inspired gains and acts as a tailwind for spot prices.
Bullish Oil prices underpin the Loonie and might cap gains despite a constructive technical setup.

Haresh Menghani FXStreet

The USD/CAD pair touches a nearly two-week high during the Asian session on Thursday and looks to extend the recent move up witnessed over the past week or so. Meanwhile, bulls await a sustained strength and acceptance above the 1.3700 mark before placing fresh bets amid mixed fundamental cues.

The US Dollar (USD) preserves the previous day's strong gains and stands firm near its highest level in over a week on the back of less dovish FOMC Minutes, which, in turn, acts as a tailwind for the USD/CAD pair. Meanwhile, Crude Oil prices gain some follow-through positive traction amid renewed US-Iran tensions, underpinning the commodity-linked Loonie and capping gains for the currency pair.

From a technical perspective, this week's breakout through the 100-period Simple Moving Average (SMA) on the 4-hour chart, for the first time since January 22, favors the USD/CAD bulls. The Moving Average Convergence Divergence (MACD) histogram remains positive and has turned marginally higher, suggesting strengthening bullish momentum. With the MACD line above the Signal line near the zero mark, the tone improves. The Relative Strength Index (RSI) prints 65, above the midline and supportive of buyers.

Meanwhile, the 100-period SMA’s gentle downward slope tempers conviction, but price action above the average preserves an upside bias. The MACD line staying above the Signal line and a widening positive histogram would underpin continuation, whereas a fade back toward the zero line would flag waning momentum. RSI at 65 is not overbought and could allow further extension if buyers maintain control. The SMA stands at 1.3617 and offers nearby dynamic support, and a close below it would open a corrective phase.

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

USD/CAD 1-hour chart

Canadian Dollar FAQs

What key factors drive the Canadian Dollar?

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

How do the decisions of the Bank of Canada impact the Canadian Dollar?

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

How does the price of Oil impact the Canadian Dollar?

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

How does inflation data impact the value of the Canadian Dollar?

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

How does economic data influence the value of the Canadian Dollar?

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.

Author

Haresh Menghani

FXStreet

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

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