USD/CAD Price Forecast: The first upside barrier is seen above 1.4450
- USD/CAD softens to near 1.4350 in Tuesday’s early European session.
- The positive view of the pair prevails above the 100-day EMA with the bullish RSI indicator.
- The first upside barrier to watch is 1.4450; the initial support level is seen in the 1.4210-1.4200 zone.
The USD/CAD pair trades in negative territory around 1.4350 during the early European session on Tuesday. The recovery in crude oil prices lifts the commodity-linked Canadian Dollar (CAD) and creates a headwind for USD/CAD. However, the downside for the pair might be limited amid the rising bets that the Federal Reserve (Fed) will slow the pace of interest rate cuts in 2025. The markets are likely to be quiet ahead of the New Year holiday.
According to the daily chart, the constructive outlook of USD/CAD remains intact as the pair is above the key 100-period Exponential Moving Average (EMA). Additionally, the upward momentum is reinforced by the 14-day Relative Strength Index (RSI), which stands above the midline near 63.50, suggesting further upside looks favorable.
The immediate resistance level emerges at 1.4450, the high of December 27. Any follow-through buying above this level could see a rally to 1.4517, the upper boundary of the Bollinger Band. Further north, the next hurdle to watch is 1.4668, the high of March 16, 2020.
On the other hand, the initial support level for the pair is located at the 1.4210-1.4200 region, representing the low of December 13 and the psychological level. Extended losses could pave the way to 1.4042, the lower limit of the Bollinger Band. The additional downside filter to watch is 1.3955, the 100-day EMA.
USD/CAD daily chart
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
FXStreet
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.
