USD/CAD Price Forecast: Outlook remains bearish below 1.4000

USD/CAD trims losses around 1.3965 in Friday’s early European session.
The negative outlook of the index remains in play below the 100-day EMA with a bearish RSI indicator.
The first support level to watch is 1.3842; the immediate resistance level is seen at 1.4000.

Lallalit Srijandorn FXStreet

The USD/CAD pair remains weak near 1.3965 during the early European session on Friday. The Greenback edges lower against the Canadian Dollar (CAD) amid persistent concerns over the global and US economies. Investors await the release of the US March Producer Price Index (PPI) and the advanced Michigan Consumer Sentiment later on Friday for fresh impetus.

According to the daily chart, the bearish sentiment of USD/CAD remains intact as the pair holds below the key 100-day Exponential Moving Average (EMA). Furthermore, the downward momentum is supported by the 14-day Relative Strength Index (RSI), which stands below the midline near 32.60, supporting the sellers in the near term.

The initial support level for the pair emerges at 1.3842, the low of November 7, 2024. Further south, the next contention level is seen at 1.3750, the low of October 16, 2024. The additional downside filter to watch is 1.3480, the low of October 1, 2024.

On the bright side, the first upside barrier for USD/CAD is located at the 1.4000 psychological level. Any follow-through buying above this level could pave the way to 1.4113, the high of April 10. A decisive break above the mentioned level could see a rally to 1.4225, the 100-day EMA.

USD/CAD daily 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.

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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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