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USD/CAD Price Forecast: Gains ground above 1.3900 as bullish momentum strengthens above 100-day SMA

  • USD/CAD gains momentum near 1.3905 in Thursday’s early European session. 
  • The positive view of the pair prevails above the 100-day SMA, with bullish RSI momentum. 
  • The immediate resistance level is located at 1.3910; the first downside target to watch is 1.3835. 

The USD/CAD pair trades in positive territory around 1.3905 during the early European trading hours on Thursday. A ceasefire agreement between Israel and Lebanon renewed hopes for diplomatic progress. This, in turn, weighs on the crude oil prices and undermines the commodity-linked Canadian Dollar (CAD). 

Furthermore, stronger-than-expected US jobs data, including the May ADP private payrolls and JOLTS job openings, suggested a resilient US labor market. These reports might prompt traders to raise their expectations that the Federal Reserve (Fed) will keep interest rates higher for longer, lifting the USD against the Loonie. Markets are now pricing in nearly a 42% odds of a Fed rate hike in December, according to the CME FedWatch Tool.  

Chart Analysis USD/CAD

Technical Analysis:

In the daily chart, USD/CAD holds a constructive bullish bias as spot remains above the 100-day simple moving average (SMA) and the Bollinger middle band. Price is pressing toward the upper Bollinger band, indicating topside pressure, while the Relative Strength Index (14) hovers just below the overbought threshold around 70, hinting that bullish momentum is strong but increasingly stretched.

On the topside, immediate resistance is aligned with the upper Bollinger band at 1.3910; a daily close above this barrier would open the door for a continuation of the advance toward higher round figures. The next hurdle to watch is the January 16 high of 1.3928, en route to March 31 high of 1.3966. 

On the downside, initial support is seen at the June 3 low of 1.3835. The next contention level is seen at the Bollinger middle band near 1.3780, followed by the 100-day SMA at 1.3720 and the lower Bollinger band around 1.3648, levels that together define a broad demand zone that would need to give way to undermine the prevailing bullish tone.

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

Canadian Dollar FAQs

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.

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.

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.

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.

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

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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