USD/CAD Price Forecast: Debate over size of Fed’s next rate hike backs further upside

USD/CAD jumps to near 1.4213 as the Canadian Dollar faces pressure from lower oil prices.
The US Dollar strengthens amid fears of aggressive Fed policy tightening.
The US CPI data remained hotter-than-expected in October.

The Canadian Dollar (CAD) continues to under perform the US Dollar (USD) due to multiple headwinds. Lower oil prices due to United States (US)-Iran deal hopes and fresh fears of aggressive Federal Reserve (Fed) monetary tightening have strengthened the USD/CAD pair.

As of writing, the USD/CAD pair is up 0.17% to near 1.4213, the highest level seen in over three weeks. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.15% higher to near 102.37.

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The appeal of currencies from economies, such as Canada, which are net energy exporter, diminishes when oil prices decline. The WTI Oil price has fallen almost 18% to near $85.35 from its recent highs of 104.03.

Fed December hike seen as sealed as debate shifts to size of move

According to TD Securities, the “strong upside surprise in the US CPI makes a December hike all but certain,” with the bank reiterating that “today's data certainly seals a Dec rate hike by the Fed.” Strategists note that “after Waller's speech, the debate has now shifted to whether the FOMC will go 25 or 50bps,” as Governor Waller’s pre-CPI remarks have sharpened the focus on the need for a potential “catch-up” move. TD Securities writes that the discussion will now center on whether the Fed should implement a “catch-up 50bps rate hike in December, or whether to maintain course with a 25bps rate increase and provide strong guidance toward a potential January follow-through.” For now, they emphasize that “we still favor a 25bp hike with a rising risk of another hike in January.”

USD/CAD Technical Analysis

In the daily chart, USD/CAD trades at 1.4212. The pair holds a bullish near-term bias, with price advancing above the 20-day Exponential Moving Average (EMA) at 1.4085, which now underpins the move. The Relative Strength Index (RSI) at 63.9 stays in positive territory without yet signaling overbought conditions, suggesting buyers retain control but with scope for consolidation after the recent recovery.

On the downside, immediate support is seen at the 1.4210 area as a nearby pivot, followed by the 20-day EMA at 1.4085, where dip-buying interest could re-emerge if a pullback develops. With no significant technical resistance immediately overhead in this dataset, the focus remains on whether bulls can defend these underlying supports to extend the broader uptrend.

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

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

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