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USD/CAD Price Forecast: Rebounds above 1.4050, constructive outlook prevails above 100-day SMA

  • USD/CAD recovers some lost ground to around 1.4050 in Thursday’s early European session. 
  • The pair keeps a bullish tone in near term, but further consolidation cannot be ruled out amid neutral RSI momentum. 
  • The first upside barrier emerges at 1.4110; the initial support level is seen in the 1.4000-1.3995 region. 

The USD/CAD pair trades in positive territory near 1.4050 during the early European session on Thursday. The US Dollar (USD) strengthens against the Canadian Dollar (CAD) on hawkish signals from the US Federal Reserve (Fed). The preliminary reading of the US Gross Domestic Product (GDP) for the second quarter (Q2) is due later in the day. 

The Fed decided to leave the Federal Funds Rate unchanged in its current target range between 3.50% and 3.75% at its July policy meeting on Wednesday, as widely expected. Dallas Fed President Lorie Logan, Cleveland’s Beth Hammack, and Minneapolis Fed President Neel Kashkari dissented in favor of raising rates by 25 basis points (bps). Fed Chairman Kevin Warsh said during the press conference that the committee will be quick to act if inflation pressures accelerate.  

On the other hand, renewed military escalation in the Middle East could boost crude oil prices and provide some support to the commodity-linked CAD. It is worth noting that Canada is a major oil-exporting country, and high crude oil prices generally have a positive impact on the Loonie.

Chart Analysis USD/CAD

Technical Analysis:

In the daily chart, USD/CAD holds above the 100-day simple moving average (SMA) and the lower Bollinger Band, keeping a constructive bullish bias while consolidating after the recent advance. Price is just under the Bollinger middle band, suggesting near-term upside is being tested, while the Relative Strength Index (RSI) at 44 remains neutral, hinting at a pause rather than a reversal in trend.

On the topside, immediate resistance aligns with the Bollinger middle band at 1.4110, followed by the upper band around 1.4225, where buying pressure could start to fade. On the downside, initial support is seen in the 1.4000-1.3995 zone, representing the psychological level and the lower Bollinger Band. The next contention level is located at the 100-day SMA at 1.3900, a deeper structural floor that should underpin the broader uptrend as long as it holds.

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

Canada Dollar support capped as trade tensions and tariff threat persist

Strategists at Scotiabank caution that, despite an improvement in underlying fundamentals, the Canada Dollar “may still struggle to gain support as trade tensions linger.” They highlight ongoing uncertainty around the tariff backdrop, noting that PM Carney has signalled a firm stance, with Canada “weighing all options for possible retaliation if there is no agreement to avoid 50% tariffs next month.” This combination of unresolved trade risks and the prospect of retaliatory measures is seen as a key factor limiting further CAD upside against the USD in the near term.

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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