RSI near 66: Strong buying interest indicated in USD/CAD Price Forecast

A one-month high remains within reach for USD/CAD. Divergent Fed-BoC rate expectations put pressure on the Canadian Dollar.
Above its 50-day and 100-day SMAs, USD/CAD retains a bullish bias as an RSI reading near 66 points to strong buying momentum.
1.4300 marks the pair’s nearest resistance; initial support lies at 1.4200.

1.4245 is the approximate USD/CAD rate at the time of writing. The pair is down 0.04% on the day but remains broadly unchanged on Thursday, close to a one-month high. The Canadian Dollar (CAD) remains under pressure from broad US Dollar (USD) strength and diverging interest rate expectations for the Federal Reserve (Fed) and the Bank of Canada (BoC).

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

December BoC hike expectations ease, leaving Canadian Dollar exposed to USD strength

TD Securities sees further room for selective US Dollar gains against major currencies. Its analysts state that “across global major currencies, we see room for the USD to rally selectively against CAD and KRW in the near-term.” With Canada’s labour market weakening relative to that of the US, they argue that “diverging employment data releases will likely keep USDCAD supported above 1.40,”. TD points specifically to a “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,”. This supports the firm’s view that the Canadian Dollar will continue to face pressure against the Dollar in the near term.

50-day and 100-day SMAs underpin bullish technical outlook

Having recovered all its October losses, USD/CAD now trades above both the 50-day and 100-day Simple Moving Averages (SMAs). Buyers remain in control, while the 200-day SMA sits well beneath the current price.

The momentum indicators reinforce this upward bias. Near 66, the Relative Strength Index (RSI) is approaching overbought territory. The Moving Average Convergence Divergence (MACD), meanwhile, holds in positive territory above its recent lows, suggesting that buying interest is persisting.

A retreat would first encounter support around 1.4200, ahead of 1.4120, a former resistance level now providing support. Further down, the trend-supporting moving averages spanning the 50-day SMA at 1.4074 and the 100-day SMA at 1.4044 should provide an additional cushion. Beyond that lies the longer-term 200-day SMA at 1.3909.

For further upside, the first hurdle is the October high around 1.4300. Clearing that resistance could allow an extension towards the psychological 1.4400 level.

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

Canadian Dollar: Key Questions

Which factors shape Canadian Dollar movements?

Interest rates set by the Bank of Canada (BoC), Oil prices, economic performance, inflation and the Trade Balance are the principal drivers of the Canadian Dollar (CAD). Oil is Canada’s largest export, while the Trade Balance measures the difference between the value of the country’s exports and imports. Investor sentiment also matters: demand for riskier assets, known as risk-on, supports the CAD, whereas risk-off conditions involve a preference for safe havens. Economic conditions in the US are another important influence, given its position as Canada’s largest trading partner.

What effect does Bank of Canada policy have on 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 interest rates to achieve this. Relatively high rates generally support the CAD. The BoC can also alter credit conditions through quantitative easing or quantitative tightening. Easing is negative for the CAD, while tightening is positive.

Why do Oil prices affect the Canadian Dollar?

As petroleum is 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 by increasing overall demand for the currency; falling prices usually have the reverse effect. Higher Oil prices also increase the likelihood of a positive Trade Balance, providing another source of support for the CAD.

Why can inflation figures move the Canadian Dollar?

Inflation was traditionally regarded as negative for a currency because it erodes the value of money. With cross-border capital controls now more relaxed, however, the relationship has reversed in modern times. Higher inflation typically prompts central banks to raise interest rates. Those higher rates attract capital from international investors looking for attractive returns, lifting demand for the domestic currency, which in Canada is the Canadian Dollar.

What do economic releases mean for the Canadian Dollar?

By indicating the economy’s health, macroeconomic releases can move the Canadian Dollar. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys all help shape the CAD’s direction. Economic strength supports the currency by attracting foreign investment and potentially encouraging the Bank of Canada to raise interest rates. Weak data, by contrast, are likely to weigh on the CAD.