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USD/CAD Price Forecast: Softens below 1.4100, but bullish outlook stays intact above key support

  • USD/CAD weakens to around 1.4075 in Friday’s early European session. 
  • Bullish bias of the pair prevails above the 100-day SMA, but further consolidation cannot be ruled out with neutral RSI momentum. 
  • The immediate resistance level is located at 1.4130; the initial support level is seen at 1.4000.  

The USD/CAD pair trades in negative territory near 1.4075 during the early European trading hours on Friday. Escalating conflicts in the Middle East boost crude oil prices, supporting the commodity-linked Canadian Dollar (CAD) against the US Dollar (USD).  

Oil prices spiked after Yemen’s Iran-backed Houthi rebels attacked oil tankers in the Red Sea, threatening a key export route that Saudi Arabia has used to bypass the Strait of Hormuz. US President Donald Trump said that the US would hold Iran responsible for the Houthis’ actions and warned that Iran and its Houthi allies would both soon receive a “major military punishment.” 

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.

The preliminary readings of the US S&P Global Purchasing Managers Index (PMI) will be in the spotlight later on Friday. If the report shows stronger-than-expected outcomes, this could help limit the Greenback’s losses in the near term.

Chart Analysis USD/CAD

Technical Analysis:

In the daily chart, USD/CAD keeps the bullish vibe, with the price holding above the 100-day Simple Moving Average (SMA). However, the pair slips back under the 20-day Bollinger SMA, signaling a loss of immediate topside traction after the recent spike. The 14-day Relative Strength Index at 47.9 sits just below the midline, hinting at directionless momentum in the near term as neither bulls nor bears currently dominate.

On the topside, initial resistance is aligned with the 20-day Bollinger SMA around 1.4130, ahead of a stronger barrier at the upper Bollinger Band near 1.4262. On the downside, the lower Bollinger Band at approximately 1.4000 offers the first line of support, with the 100-day SMA at 1.3875 reinforcing a deeper demand zone if selling pressure extends.

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

Us trade comments ease concern over Canada tariffs

Strategists at Scotiabank highlight a more constructive tone from US officials on the latest tariff measures, noting that US Trade Representative Greer “offered some hope that the latest tariff blast from Washington would not undermine US/Canada trade relations in the long run and that talks could make progress towards a broader agreement before year-end.” This, they suggest, helps temper market anxiety around the bilateral trade outlook even as currency markets continue to track the broader US Dollar trend.

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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