USD/CAD Price Forecast: Holds gains above 1.4200, bullish trend intact despite overbought signals

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The USD/CAD pair trades in positive territory around 1.4235 during the early European trading hours on Tuesday. The growing chances of Federal Reserve (Fed) interest rate hikes and optimism about the US economy provide some support to the US Dollar (USD) against the Canadian Dollar (CAD).

USD/CAD gains momentum to near 1.4235 in Tuesday’s early European session.
The pair keep the bullish vibe, but further consolidation cannot be ruled out with the overbought RSI.
The first upside barrier emerges at 1.4310; the initial support level to watch is 1.4169.

The key US jobs data for June will be in the spotlight later on Thursday. This report could give traders a greater sense of how accurately markets are pricing the chances of Fed rate hikes this year. Money markets showed traders fully expect one rate hike this year, with a roughly 50% chance of a second, according to LSEG data.

Crude oil prices have edged lower following a 60-day interim ceasefire agreement between the US and Iran. Traders will closely monitor the US-Iran peace talks in Doha, Qatar, later in the day. Positive developments surrounding the ceasefire deal could drag the crude oil prices lower. It is worth noting that Canada is a major oil-exporting country, and lower crude oil prices generally have a negative impact on the Canadian Dollar (CAD).

Technical Analysis:

In the daily chart, USD/CAD remains in a bullish near-term bias as spot holds above the 100-day Simple Moving Average (SMA) and the Bollinger middle band, reinforcing an underlying uptrend. The Relative Strength Index (14) stands at 82.4 sits in overbought territory, hinting that the latest advance could be stretched.

On the topside, immediate resistance is located at the Bollinger upper band at 1.4310, where buyers may hesitate to extend gains. On the downside, initial support is seen at the June 26 low of 1.4169, followed by the Bollinger middle band around 1.4068, before deeper demand emerges at the lower band near 1.3825 and the 100-day SMA at 1.3793, which together mark a more substantial structural floor.

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

Canadian Dollar FAQs

What key factors drive the Canadian Dollar?

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

How do the decisions of the Bank of Canada impact the Canadian Dollar?

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

How does the price of Oil impact the Canadian Dollar?

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

How does inflation data impact the value of the Canadian Dollar?

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

How does economic data influence the value of the Canadian Dollar?

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.