USD/CAD Price Forecast: Positive bias holds above 100-day SMA as pair climbs beyond 1.4250

Buying momentum lifts USD/CAD towards 1.4260 in early European trade on Thursday.
Trading above the 100-day SMA keeps the pair’s bullish bias intact.
While 1.4240 offers initial support, the first resistance lies at 1.4287.

Upward momentum takes USD/CAD to around 1.4260 in Thursday’s early European session, as weaker crude oil prices weigh on the commodity-linked Canadian Dollar (CAD) against the US Dollar (USD).

A major prisoner exchange was agreed by Russian and Ukrainian negotiators after two days of peace talks in Abu Dhabi ended on Wednesday, according to Reuters. Significant differences nevertheless remain on core issues, especially territory, US mediators said. Ukrainian President Volodymyr Zelenskiy voiced hope that concrete progress towards resolving the war could be achieved this year.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

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

Expectations of a December interest rate hike by the Federal Reserve (Fed) have strengthened among traders after US Consumer Price Index (CPI) inflation exceeded forecasts and Fed Governor Christopher Waller delivered his remarks.

Earlier this week, Waller indicated his support for a quarter-point increase in December, adding that he might favour a half-point hike should inflation data prove worse than expected.

Can the USD Extend Gains Against the Canadian Dollar and Korean Won as BoC Expectations Ease?

Selective support for the US Dollar against 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,” alongside the observation that “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 states 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 notes. The firm expects that “USDKRW should continue to retrace toward 1400 as the market rotates out of AI build-out theme,” but adds that “to the contrary, Carry and Value factors remain bullish for MXN,” reflecting a more favourable view of the Mexican Peso while positioning for additional USD gains against CAD and KRW.

Does Goolsbee’s Inflation Warning Signal a More Hawkish Fed?

A more hawkish tone from the Fed’s Goolsbee is reflected in an FXS Speechtracker score of 8/10, against an established baseline of 6.8/10, pointing to increased concern about inflation trends. His description of the latest CPI as “borderline disturbing,” coupled with the statements that services inflation is “not coming down,” and that “we have a real inflation issue on our hands” highlights mounting anxiety over stubborn price pressures and the possibility of inflation expectations becoming entrenched. This is despite a labour market that remains “steady and stable.” By stating that “everything is always on the table” and that the Fed “must get inflation down to target,” Goolsbee keeps open the prospect of additional policy tightening or restrictive rates lasting longer, conditions that typically favour the Dollar over lower-yielding currencies.

An increase of 1.69 points took the FXS Fed Sentiment Index to 145.61, placing it firmly in hawkish territory and aligning with the unusually strong tone recorded by the FXS Speechtracker. Well above the neutral 100 level, the reading points to a clear move towards putting inflation control ahead of risks to growth. Such a stance should sustain expectations of higher-for-longer US interest rates and support demand for the Dollar.

Technical Analysis: Can USD/CAD Sustain Its Bullish Bias Above the 100-Day SMA?

Holding above both the 100-day moving average (MA) and the Bollinger middle band keeps the near-term outlook bullish for USD/CAD on the daily chart. The price is also pushing just beyond the 20-day Bollinger upper band, signalling a strong extension higher. Meanwhile, the Relative Strength Index (14), at around 67, points to robust positive momentum, although it is approaching overbought territory.

The former Bollinger upper band near 1.4240 provides the first downside support, ahead of the 7 October low at 1.4205 and the 20-day Bollinger middle band at 1.4065. Should this level give way, the 100-day MA at 1.4045 could come into focus, followed by the lower Bollinger band around 1.3890.

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

(An AI tool assisted in preparing the technical analysis for this article. Learn more.)

Canadian Dollar: Frequently Asked Questions

Which factors chiefly influence the Canadian Dollar?

Interest rates set by the Bank of Canada (BoC), oil prices, domestic economic conditions, inflation and the trade balance are among the main drivers of the Canadian Dollar (CAD). Oil is Canada’s largest export, while the trade balance measures the difference between the value of its exports and imports. Investor sentiment also matters: demand for riskier assets, known as risk-on, supports the CAD, whereas risk-off sentiment involves a preference for safe havens. The strength of the US economy is another important influence, given that the US is Canada’s largest trading partner.

Why do Bank of Canada decisions matter for the Canadian Dollar?

By determining the interest rate at which banks lend to each other, the Bank of Canada (BoC) influences borrowing rates across the economy and, in turn, the Canadian Dollar. Its primary objective is to keep inflation within 1-3%, raising or lowering rates as needed. Relatively high interest rates generally support the CAD. To shape credit conditions, the Bank of Canada can also deploy quantitative easing, which weighs on the CAD, or quantitative tightening, which supports it.

Why is the Canadian Dollar sensitive to oil prices?

With petroleum accounting for Canada’s largest export, changes in oil prices tend to feed directly into the Canadian Dollar’s value. Rising oil prices generally lift the CAD as overall demand for the currency grows, while falling prices tend to have the reverse effect. More expensive oil also increases the likelihood of a trade surplus, providing further support for the CAD.

Why can inflation figures move the Canadian Dollar?

Traditionally, inflation was viewed as harmful to a currency because it erodes the value of money. In modern markets, however, the easing of cross-border capital controls has often produced the opposite effect. When inflation rises, central banks tend to increase interest rates, drawing capital from global investors seeking attractive returns. The resulting inflows raise demand for the domestic currency, which in Canada is the Canadian Dollar.

What role do economic releases play in Canadian Dollar movements?

The Canadian Dollar can respond to macroeconomic releases because they indicate the economy’s health. GDP, manufacturing and services PMIs, employment figures and consumer sentiment surveys can all shape the CAD’s direction. Economic strength supports the currency by attracting foreign investment and potentially prompting the Bank of Canada to raise interest rates. Weak data, by contrast, is likely to weigh on the CAD.