Stronger USD weighs on Canadian Dollar as bullish oil cushions losses ahead of BoC, Fed

• The 1.4000 level provides a base for a USD/CAD rebound, but mixed fundamentals leave the advance short of conviction.
• Persistent demand for the USD lifts the pair, while rising oil prices support the Loonie and limit the upside.
• With Wednesday's closely watched BoC and Fed rate decisions approaching, traders also appear reluctant to commit.

The psychological 1.4000 level draws dip-buying in USD/CAD on Tuesday, with broad US Dollar (USD) strength helping the pair recover some of the previous day's modest decline. Gains remain constrained, however, as another rise in crude oil prices lends support to the commodity-linked Loonie. Traders are also awaiting this week's major central bank events.

Expectations of a 25-basis-point (bps) rate increase accompany Wednesday's scheduled Bank of Canada (BoC) decision, although the conclusion of the two-day FOMC meeting will remain the main focus. Investors will also examine Federal Reserve (Fed) Chair Kevin Warsh's remarks at the post-meeting press conference for further indications of the policy outlook. His comments come ahead of Thursday's important US economic releases: the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index. Together, these developments will be instrumental in shaping USD movements and giving USD/CAD fresh direction.

For now, traders appear convinced that inflation concerns arising from elevated energy prices will prompt the US central bank to increase borrowing costs again by the year-end. Meanwhile, the impasse in US-Iran talks and fresh attacks on Saudi Arabia sustain the geopolitical risk premium, helping the safe-haven USD advance for a third consecutive day. Continued support for USD/CAD may therefore be forthcoming. This calls for caution among bearish traders looking to position for a further decline following the recent rejection at 1.4300, the highest level since April 2025, reached earlier this month.

USD/CAD on the 1-hour chart

Technical Outlook Remains Bearish

Trading below the 200-period Exponential Moving Average (EMA) at 1.4070 on the 4-hour chart leaves USD/CAD with a bearish near-term bias. A congested resistance zone also restricts the pair, stretching from the 23.6% Fibonacci retracement at 1.4048 towards the EMA. Advances remain vulnerable while prices hold below this area.

Beyond that zone, resistance lies at the 38.2% retracement of 1.4097, then the 50.0% level of 1.4136 and the 61.8% retracement of 1.4176. Further hurdles stand at 1.4232 and 1.4303. Initial downside support, meanwhile, rests near the Fibonacci anchor at 1.3969. A break below that point would clear the way for a deeper correction within the broader bullish cycle framed by this structural low and the 1.4303 high.

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