USD/CAD Price Forecast: Gathers strength to near 1.3950 despite overbought RSI signals

USD/CAD gains momentum to near 1.3945 in Monday’s early European session.
The pair's constructive outlook remains intact above the 100-day SMA, but further consolidation can’t be ruled out with an overbought RSI.
The immediate resistance level is seen at 1.3950; the initial support level is located at 1.3805.

Lallalit Srijandorn FXStreet

The USD/CAD pair trades in positive territory around 1.3945 during the early European session on Monday. The US Dollar (USD) strengthens against the Canadian Dollar (CAD), the highest since April 3, amid intensified geopolitical tensions in the Middle East.

Furthermore, a stronger-than-expected US jobs report has reignited expectations that the US Federal Reserve (Fed) may raise the interest rate later this year, lifting the Greenback. Markets are now pricing in more than a 70% chance that the Fed will raise rates in December, sharply up from a 45% probability a week ago, according to the CME FedWatch tool.

Technical Analysis:

In the daily chart, USD/CAD trades with a clear bullish bias, holding well above the 100-day simple moving average (SMA) and the 20-day Bollinger middle band. Price is pressing the upper Bollinger Band around 1.3950, while the Relative Strength Index (RSI) at 73 is in overbought territory, suggesting strong but stretched upside momentum that could invite consolidation after further gains.

On the topside, immediate resistance is aligned with the Bollinger upper band at 1.3950, and a decisive daily close above this barrier would pave the way to the 1.4000 psychological level. On the downside, initial support is located at the June 4 low of 1.3881. The next contention level is seen at the Bollinger middle band near 1.3805, followed by the 100-day SMA at 1.3722, with the lower Bollinger Band around 1.3660 acting as a deeper cushion if a corrective pullback unfolds.

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

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

Lallalit Srijandorn

FXStreet

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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