Above 1.4250: USD/CAD strengthens, price forecast remains positive above 100-day SMA

1.4260 is within reach as USD/CAD strengthens in early European trading on Thursday.
Holding above the 100-day SMA, the pair retains its bullish bias.
1.4240 marks initial support, while 1.4287 is the first resistance level.

1.4260 is the approximate level reached by USD/CAD as momentum builds early in Thursday’s European session. Lower crude oil prices are putting some selling pressure 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, Reuters reported. US mediators nevertheless said substantial differences remained on central issues, especially territory. Ukrainian President Volodymyr Zelenskiy voiced hope for concrete progress towards resolving the war 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.

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

Earlier this week, Waller indicated support for a quarter-point increase in December. He added that he might advocate a half-point rise if inflation figures proved worse than expected.

1.40 Support in Focus as USD Outlook Firms Against Canadian Dollar and Korean Won, BoC Expectations Recede

Select major currencies are likely to remain under pressure from a supported US Dollar, according to TD Securities. Its 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,” as “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 that 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 examples beyond the Canadian Dollar, TD Securities adds. The analysts expect “USDKRW should continue to retrace toward 1400 as the market rotates out of AI build-out theme,” whereas “to the contrary, Carry and Value factors remain bullish for MXN,” reflects their more favourable view of the Mexican Peso. That stance accompanies positioning for additional USD gains against CAD and KRW.

8/10 Speechtracker Score: Goolsbee’s Inflation Concerns Sharpen Fed’s Hawkish Message

An FXS Speechtracker score of 8/10, against an established baseline of 6.8/10, captures a distinctly more hawkish message from the Fed’s Goolsbee. His remarks reveal increased concern about inflation dynamics. Describing the latest CPI as “borderline disturbing,” services inflation as “not coming down,” and warning that “we have a real inflation issue on our hands” points to mounting unease over persistent price pressures and the potential entrenchment of inflation expectations. This comes despite a labour market described as “steady and stable.” His insistence that “everything is always on the table” and that the Fed “must get inflation down to target” keeps further tightening or a prolonged period of restrictive rates in play. Such conditions typically favour the Dollar against lower-yielding currencies.

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

100-Day SMA Underpins Bullish USD/CAD Technical Outlook

The daily chart shows a positive near-term bias for USD/CAD, with spot trading above both the 100-day moving average (MA) and the Bollinger middle band. A push just beyond the 20-day Bollinger upper band also points to a strong upward extension. Meanwhile, the Relative Strength Index (14), at around 67, indicates robust positive momentum while approaching overbought territory.

The former Bollinger upper band around 1.4240 provides immediate downside support. Next come the 7 October low of 1.4205 and the 20-day Bollinger middle band at 1.4065. A break below the latter could bring the 100-day MA at 1.4045 into view, followed by the Bollinger lower band near 1.3890.

For an advance, the first resistance is the 12 October high at 1.4287. Beyond it lie the 1 April 2025 high 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.)

Canadian Dollar: Frequently Asked Questions

Canadian Dollar: Main Market Drivers

Bank of Canada (BoC) interest rates, oil prices, economic health, 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 exports and imports. Investor sentiment also matters: a shift towards riskier assets, known as risk-on, supports CAD, whereas risk-off reflects a preference for safe havens. The state of the US economy is another important influence, given that the US is Canada’s largest trading partner.

Bank of Canada Policy and the Canadian Dollar

By setting the interest rate at which banks lend to each other, the Bank of Canada (BoC) exerts considerable influence over the Canadian Dollar. That rate feeds through to borrowing costs across the economy. Keeping inflation within 1-3% is the BoC’s primary objective, pursued through increases or cuts in interest rates. Relatively high rates generally support CAD. The central bank can also alter credit conditions through quantitative easing, which weighs on CAD, or quantitative tightening, which supports it.

Oil Prices and Their Effect on the Canadian Dollar

As petroleum is Canada’s largest export, changes in oil prices tend to affect the Canadian Dollar immediately, making them an important driver of its value. Rising oil prices generally lift CAD by increasing overall demand for the currency; falling prices have the reverse effect. Higher oil prices also make a trade surplus more likely, providing further support for CAD.

Inflation Figures and Canadian Dollar Demand

Inflation was traditionally viewed as harmful to a currency because it erodes the value of money. In modern times, however, the easing of cross-border capital controls has produced the opposite effect. Higher inflation tends to prompt central banks to raise interest rates. Those higher returns draw capital from global investors seeking attractive places for their funds, increasing demand for the domestic currency, which in Canada is the Canadian Dollar.

Economic Indicators and Canadian Dollar Performance

Releases of macroeconomic data provide a measure of economic health and can move the Canadian Dollar. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys all help shape CAD’s direction. A healthy economy supports the currency by attracting foreign investment and potentially prompting the Bank of Canada to raise interest rates, strengthening CAD further. Weak economic figures, by contrast, are likely to weigh on the currency.