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USD/CAD Price Forecast: Hovers around 1.4000 amid ongoing bearish bias
- USD/CAD may fall toward the five-month low of 1.3732.
- The 14-day Relative Strength Index hovers near 38, hinting at lingering downside pressure.
- The initial resistance lies at the 50-day EMA of 1.4069.
USD/CAD remains steady after six days of losses, trading around 1.4010 during Asian hours on Friday. The pair is extending a corrective pullback below its short- and medium-term moving averages and keeping a bearish near-term bias. The 50- and nine-day Exponential Moving Averages (EMAs) both stand above spot, suggesting the recent decline has pushed the pair underneath its dynamic trend supports, now acting as overhead barriers.
Momentum has cooled, with the 14-day Relative Strength Index (RSI) hovering near 38, hinting at lingering downside pressure rather than outright oversold conditions, while the FXS Fed Sentiment Index near 127 points to a softer but stable policy backdrop that does little to offset the technical drag.
On the downside, the USD/CAD pair may navigate the region around the five-month low of 1.3732, recorded on May 21. Further support lies at 1.3481, the lowest since October 2024.
The USD/CAD pair may rise toward the initial resistance at the 50-day EMA of 1.4069, followed by the nine-day EMA of 1.4091. Further advances above these moving averages would support the pair to test the 18-month high of 1.4299, recorded on October 14.
USD/CAD anchored as IMF growth revisions widen North American gap
Strategists at Societe Generale highlight that the latest IMF projections are reinforcing a less favourable backdrop for the Canadian Dollar relative to the US. They note that “with the IMF’s US growth forecast revised up to 2.5% this year (while remaining at 2.1% in 2027), the North American growth gap is widening.” While the accompanying chart “shows relative Bloomberg consensus growth forecasts for 2027,” the bank points out that “the IMF’s assessment (1.2% growth in Canada next year versus 2.1% in the US) is even less favourable for Canada.” Against this macro backdrop, Societe Generale emphasises the importance of rate spreads, with “the chart on the left” illustrating “the two-year rate differential plotted against USD/CAD,” underscoring how relative growth and yield dynamics continue to steer the currency pair.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Canadian Dollar FAQs
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.
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.
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.
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.
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.
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