USD/CAD Price Forecast: Advances above 1.4250 as bias stays positive above 100-day SMA

• Near 1.4260, USD/CAD extends its advance in early European trading on Thursday.
• Holding above the 100-day SMA, the pair retains a bullish bias.
• At 1.4240 lies initial support, while 1.4287 marks the first resistance level.

Lower crude oil prices put some selling pressure on the commodity-linked Canadian Dollar (CAD) against the US Dollar (USD), helping USD/CAD advance towards 1.4260 in Thursday’s early European trading.

After two days of peace talks in Abu Dhabi ended on Wednesday, Russian and Ukrainian negotiators agreed to a major prisoner exchange, according to Reuters. US mediators nevertheless reported substantial differences on key questions, particularly territorial issues. Ukrainian President Volodymyr Zelenskiy voiced hope that concrete progress towards resolving the war could be achieved this year.

As Canada is a major oil exporter, elevated crude prices generally support the Loonie.

Stronger-than-expected US Consumer Price Index (CPI) inflation figures, alongside comments from Federal Reserve (Fed) Governor Christopher Waller, have prompted traders to increase bets on a December Fed rate rise.

Earlier this week, Waller indicated that he would back a quarter-point increase in December, potentially advocating a half-point rise if inflation figures prove worse than expected.

USD poised to gain against Canadian Dollar and Korean Won as BoC rate-rise bets recede

Support for the US Dollar against selected major currencies is likely to persist, according to TD Securities, whose analysts see “room for the USD to rally selectively against CAD and KRW in the near-term.” Their view is that “diverging employment data releases will likely keep USDCAD supported above 1.40,” while “rising unemployment rate amid falling wage growth rate in Canada also reduces the market pricing of a December BoC rate hike relative to the Fed.” Against this backdrop, TD Securities state that “for investors looking to chase USD upside, we see USDCAD more supported at 1.40 on the back of diverging jobs data.”

Korea and Mexico offer contrasting outlooks beyond the Canadian Dollar, TD Securities add. The analysts anticipate that “USDKRW should continue to retrace toward 1400 as the market rotates out of AI build-out theme,” but note that “to the contrary, Carry and Value factors remain bullish for MXN,” Their positioning for additional USD gains against CAD and KRW therefore sits alongside a more favourable view of the Mexican Peso.

Goolsbee’s inflation concerns reinforce hawkish Fed message

An FXS Speechtracker score of 8/10, against an established baseline of 6.8/10, captures a markedly more hawkish message from the Fed’s Goolsbee and greater concern about inflation. Describing the latest CPI as “borderline disturbing,” services inflation as “not coming down,” and the situation as “we have a real inflation issue on our hands” points to mounting anxiety over persistent price pressures and the possibility of entrenched inflation expectations. This comes even as the labour market remains “steady and stable.” His insistence that “everything is always on the table” and that the Fed “must get inflation down to target” underlines the prospect of additional tightening or a prolonged period of restrictive interest rates, conditions that typically favour the Dollar over lower-yielding currencies.

A rise of 1.69 points took the FXS Fed Sentiment Index to 145.61, placing it firmly in hawkish territory and corroborating the stronger-than-usual message recorded by the FXS Speechtracker. Far above the neutral threshold of 100, the reading indicates a clear shift towards giving inflation control precedence over risks to growth. That stance should sustain expectations of higher-for-longer US interest rates and support demand for the Dollar.

Technical Analysis: USD/CAD retains bullish bias above 100-day SMA

With spot trading above both the 100-day moving average (MA) and the middle Bollinger band, the daily USD/CAD chart continues to favour near-term gains. The price is also edging above the upper 20-day Bollinger band, signalling a strong upward extension. Meanwhile, a Relative Strength Index (14) reading near 67 points to solid positive momentum, albeit increasingly close to overbought territory.

Initial downside support lies near 1.4240 at the former upper Bollinger band. Below that, the 7 October low of 1.4205 precedes the middle 20-day Bollinger band at 1.4065. A break beneath the latter could bring the 100-day MA at 1.4045 into view, followed by the lower Bollinger band around 1.3890.

For further gains, the first hurdle is the 12 October high of 1.4287. Beyond it lie the 1 April 2025 peak of 1.4415 and the 3 March 2025 high of 1.4542. 

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