USD/CAD Price Forecast: Holds gains above 1.4000, bullish bias persists despite overbought RSI

USD/CAD trades stronger near 1.4005 in Wednesday’s early European session.
The pair maintains a bullish bias, but a temporary sell-off cannot be ruled out with the overbought RSI.
The first upside target to watch is 1.4048; the initial support level is seen at 1.3931.

Lallalit Srijandorn FXStreet

The USD/CAD pair trades in positive territory around 1.4005 during the early European trading hours on Wednesday. Optimism surrounding the US-Iran peace agreement drags crude oil prices lower and weighs on the commodity-linked Canadian Dollar (CAD).

US Vice President JD Vance said on Tuesday that US President Donald Trump may decide to release a preliminary deal to end the war with Iran before Friday, after the US president said the agreement had already been signed.

All eyes will be on the US Federal Reserve (Fed) interest rate decision under new Chair Kevin Warsh later on Wednesday. The US central bank is expected to leave its benchmark interest rate unchanged at a target range of 3.50% to 3.75% at the June meeting.

Technical Analysis:

In the daily chart, USD/CAD holds firmly above the 100-day simple moving average (SMA) and the Bollinger middle band, keeping the near-term bias bullish as price consolidates close to recent highs. The Bollinger upper band at roughly 1.4048 caps the immediate upside, while the Relative Strength Index (RSI) at about 77 sits in overbought territory, suggesting stretched but still strong upside momentum that could leave the pair vulnerable to a corrective pause.

On the topside, initial resistance is aligned at the Bollinger upper band around 1.4048; a daily close above this barrier would open the way toward the 1.4100 psychological level. On the downside, the first line of support emerges at the June 11 low of 1.3931. The next contention level is located at the Bollinger middle band near 1.3892, ahead of a deeper demand zone clustered around the 100-day SMA at 1.3740 and the lower Bollinger band near 1.3736, where a more significant pullback would be expected to attract buyers in line with the prevailing bullish structure.

(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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