USD/CAD Price Forecast: Stands firm near 1.3850 as bullish USD counters rising Oil prices

USD/CAD regains positive traction as geopolitics and hawkish Fed bets continue to support the USD.
Rising Crude Oil prices underpin the commodity-linked Loonie and cap further gains for spot prices.
The technical setup favors bulls and backs the case for a move towards testing the recent swing high.

Haresh Menghani FXStreet

The USD/CAD pair attracts fresh buyers following the previous day's directionless price moves and sticks to modest intraday gains, around mid-1.3800s, through the first half of the European session on Wednesday.

Persistent geopolitical uncertainties, along with hawkish US Federal Reserve (Fed) expectations, benefit the US Dollar's (USD) reserve currency status and act as a tailwind for spot prices. Meanwhile, renewed hostilities in the Middle East push Crude Oil prices higher for the third straight day, underpinning the commodity-linked Loonie and capping gains for the USD/CAD pair.

From a technical perspective, spot prices maintain a constructive bullish bias following the recent breakout through the 1.3755 confluence – comprising the 50-day Simple Moving Average (SMA) and the 61.8% Fibonacci retracement of the April-May fall. Moreover, the Relative Strength Index (14) hovers near 65, suggesting firm but not yet overbought upside momentum.

Adding to this, the Moving Average Convergence Divergence (MACD) remains in positive territory, hinting that buyers still retain control despite nearby overhead levels. However, it will still be prudent to wait for a subsequent strength beyond the immediate resistance at the 78.6% Fibo. retracement at 1.3876, before placing fresh bullish bets around the USD/CAD pair.

Spot prices might then aim to test the recent swing high around 1.3965, which might act as a stronger cap. On the downside, initial support is seen at the 61.8% retracement at 1.3806, with a deeper demand band clustered around the 50% retracement at 1.3757 and the 50-day SMA at 1.3760. Further losses would expose the 38.2% level at 1.3708 and the 23.6% retracement at 1.3647.

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

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.

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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