USD/CAD Price Forecast: Struggles near mid-1.3800s as bears await break below 200-day EMA

USD/CAD attracts sellers for the third straight day amid a broad-based USD sell-off.
Tumbling Crude Oil prices undermine the Loonie and help limit losses for the pair.
A break below the 200-day EMA is needed to back the case for further depreciation.

Haresh Menghani FXStreet

The USD/CAD pair extends its weekly downtrend for the third straight day and dives to a nearly two-week low on Wednesday, though it lacks follow-through selling. Spot prices trade around mid-1.3800s, down nearly 0.30% for the day, amid mixed fundamental cues.

The US Dollar (USD) comes under intense selling pressure and plummets to a nearly one-month low in reaction to the optimism led by the US-Iran ceasefire. Furthermore, Iran’s Foreign Minister, Seyed Abbas Araghchi, said that safe passage through the key waterway will be possible for a period of two weeks, triggering a steep decline in Crude Oil prices. This, in turn, undermines the commodity-linked Loonie and helps limit losses for the USD/CAD pair.

From a technical perspective, the Moving Average Convergence Divergence (MACD) indicator (12, 26, 9) shows the MACD line still above the signal line but converging and drifting back toward the zero line, suggesting fading bullish pressure rather than outright bearish control. Moreover, the Relative Strength Index (RSI) has eased from overbought readings above 70 to the high-50s, indicating that upside momentum is cooling but not reversing.

Adding to this, the US/CAD pair stalls the intraday downfall just ahead of the key 200-day Exponential Moving Average (EMA) breakpoint. This makes it prudent to wait for a sustained break and acceptance below the said support near the 1.3815 region before placing fresh bearish bets and positioning for additional losses to deeper support around 1.3750. Further downside, if seen, could target 1.3680 as the next key near-term floor.

On the topside, initial resistance stands at 1.3925, the recent high zone that capped advances, followed by 1.3970. A daily close above 1.3970 would reopen the path toward the 1.4050 area, reinforcing the prevailing bullish bias.

(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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