1.4050 cleared: USD/CAD Price Forecast points towards moving averages

1.3950 marks a potential downside area for USD/CAD near the falling wedge’s lower boundary.
Bearish momentum persists, with the 14-day Relative Strength Index near 45.
Immediate resistance is being tested where the 50- and nine-day EMAs converge at 1.4066 and 1.4067, respectively.

1.4060 is the approximate level for USD/CAD in Wednesday’s European session. The pair is advancing for a third consecutive day, ahead of an expected 25-basis-point interest rate hike by the Bank of Canada (BoC) later in the day.

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A falling wedge continues to contain the pair on the daily chart. As selling momentum fades, this technical pattern points to the possibility of a bullish breakout.

A closely grouped set of Exponential Moving Averages (EMAs) is keeping the near-term outlook for USD/CAD bearish. Spot remains just below the 50-day EMA near 1.4066 and the nine-day EMA around 1.4068, both of which provide immediate resistance.

After failing to hold recent highs, USD/CAD has dropped below these trend indicators. The 14-day Relative Strength Index (RSI), at around 45, signals persistent bearish momentum rather than outright oversold conditions.

A decline towards 1.3950 could bring USD/CAD to the falling wedge’s lower boundary. Should the pair break below the pattern, further selling pressure could take it towards the five-month low of 1.3732 set on 21 May. Beyond that, support stands at 1.3481, the lowest level since October 2024.

At 1.4066 and 1.4067, respectively, the 50- and nine-day EMAs form the immediate resistance confluence now being tested by USD/CAD. This area also aligns with the falling wedge’s upper boundary. A move above it would clear the way towards 1.4299, the nearly 18-month high reached on 14 October.

Chart Analysis USD/CAD — USD/CAD: Daily Technical Chart

December hike remains possible as Fed expected to hold now

An unchanged rate decision is expected at this week’s Fed meeting by strategists at ABN Amro, although they flag “some risk of hawkish dissents”. In their assessment, “inflation remains too hot,” yet “declining breadth and a cooler labour market give the Fed room to wait.” They point to a change in market pricing, noting that investors have “sharply reduced the probability of an October hike, and December is no longer fully priced.” Despite this, ABN Amro continues to expect “one final 25bp hike in December, followed by an extended hold.”

80% hike probability leaves BoC decision open to surprise

Today’s BoC decision is not a foregone conclusion, according to analysts at MUFG/BTMU. Current market pricing signals “an 80% probability of a rate hike,” which they say “is not quite in done-deal territory and there is scope for a surprise.” Although investors favour another BoC move, the analysts see enough uncertainty for the meeting to remain a live event for markets.

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

Canadian Dollar: Frequently Asked Questions

Canadian Dollar: the main drivers

Interest rates set by the Bank of Canada (BoC), Oil prices, economic conditions, 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 appetite for risk also matters: risk-on sentiment, when investors favour riskier assets, supports CAD, in contrast to risk-off conditions, when they seek safe havens. The health of the US economy is another major influence, as the US is Canada’s largest trading partner.

Bank of Canada decisions and their effect on CAD

By determining the interest rate at which banks lend to each other, the Bank of Canada (BoC) shapes borrowing rates across the economy and has a substantial influence on the Canadian Dollar. Its primary objective is to keep inflation within 1-3%, raising or lowering rates as needed. Higher relative interest rates generally support CAD. Credit conditions can also be influenced through quantitative easing or tightening: easing is negative for CAD, while tightening is positive.

Oil prices and the Canadian Dollar

Canada’s largest export is petroleum, making Oil prices a major influence on the Canadian Dollar, often with an immediate effect. Rising Oil prices generally lift CAD by increasing aggregate demand for the currency; falling prices tend to have the reverse effect. A higher Oil price also makes a positive Trade Balance more likely, providing additional support for CAD.

Inflation data and CAD demand

Traditionally, inflation was viewed as detrimental to a currency because it erodes the value of money. With cross-border capital controls relaxed in modern times, however, the relationship has generally reversed. Higher inflation tends to prompt central banks to raise interest rates, drawing capital from global investors seeking attractive returns. Those inflows increase demand for the domestic currency, which in Canada is the Canadian Dollar.

Economic indicators and the Canadian Dollar’s direction

The Canadian Dollar can respond to macroeconomic releases because they indicate the economy’s health. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys can all help determine 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, is likely to weigh on CAD.

1.4050 cleared: USD/CAD Price Forecast points towards moving averages

December hike remains possible as Fed expected to hold now

80% hike probability leaves BoC decision open to surprise