USD/CAD Price Forecast: Seems vulnerable near 1.3560 as technical breakdown remains in play

USD/CAD remains under selling pressure on Wednesday as a softer USD offsets sliding Oil prices.
The recent breakdown through a trading range support backs the case for a further depreciation.
The 100-period SMA support breakpoint on H4 might keep a lid on any attempted recovery move.

Haresh Menghani FXStreet

The USD/CAD pair sticks to its modest intraday losses through the early European session on Wednesday and currently trades just above mid-1.3500s, down nearly 0.15% for the day. Spot prices, meanwhile, remain close to a nearly one-month low, touched on Monday, and seem vulnerable to slide further.

The US Dollar (USD) attracts fresh sellers amid expectations that Crude Oil prices are no longer high enough to limit the US Federal Reserve's (Fed) ability to cut interest rates. This offsets a fresh leg down in Crude Oil prices – which tend to undermine demand for the commodity-linked Loonie – and turns out to be a key factor exerting downward pressure on the USD/CAD pair.

From a technical perspective, the recent breakdown through a short-term trading range support and acceptance below the 100-period Simple Moving Average (SMA) could be seen as an important trigger for the USD/CAD bears. The Relative Strength Index (RSI) hovers in the low-40s, reinforcing a slight downside tilt rather than an oversold condition. This validates the near-term negative outlook.

Meanwhile, the Moving Average Convergence Divergence (MACD) line remains marginally above its Signal line but close to the zero mark, suggesting weak momentum and limited directional conviction. Nevertheless, the bias is mildly bearish as the USD/CAD pair holds below the gently descending 100-period SMA on the 4-hour chart near 1.3657, which should keep upside attempts contained.

Initial resistance emerges at 1.3600, where a break would expose the 1.3657 area, aligning with the 100-period SMA as a stronger cap. Above this, 1.3690 stands as a subsequent barrier that would need to yield to shift the broader tone higher.

On the downside, immediate support sits at 1.3540, with a clear drop below opening the way toward 1.3500 as the next bearish objective. A sustained recovery above 1.3657 would be required to negate the current soft bearish bias and hint at a more constructive phase.

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

USD/CAD 4-hour 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.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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