USD/CAD Price Forecast: Hovers near 1.3650 as RSI remains bearish

USD/CAD trades sideways as a bullish piercing pattern emerges on the chart.
RSI remains bearish, suggesting downside pressure still dominates the trend.
Break above 1.3709 targets 1.3727 and 1.3742 resistance levels.

Christian Borjon Valencia FXStreet

USD/CAD continues to trade laterally on Wednesday during the North American session, flattish at around 1.3658, as the pair seems capped by Monday's price action, in which the Loonie appreciated 0.34% against the US Dollar (USD).

USD/CAD Price Forecast: Technical outlook

On Monday, the USD/CAD pair reached a daily high of 1.3709 and closed near the lows at 1.3644, extending a six-day streak of bearish sessions. Nevertheless, bulls moved in, finishing Tuesday in the green, up 0.15%, and forming a ‘bullish piercing pattern,’ which requires clearing the current week’s high of 1.3709 for further upside.

Momentum remains shifted to the downside as depicted by the Relative Strength Index (RSI). Hence, if sellers move in and clear Tuesday's swing low of 1.3631, a move towards the 1.3600 figure is on the cards. Below, the next area of interest is the March 9 daily low at 1.3525.

On the upside, buyers must clear the 1.3700 figure, with immediate resistance seen at the 50-day Simple Moving Average (SMA) at 1.3727. Up next is the 100-day SMA at 1.3742, with the next supply area at 1.3800.

USD/CAD Price Chart – Daily

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

Christian Borjon Valencia

FXStreet

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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