USD/CAD Price Forecast: Bulls retain control near August 6 highs, just below mid-1.4000s
- USD/CAD enters a bullish consolidation phase after touching a fresh high since August 6.
- Rebounding crude oil prices underpin the Loonie, while a bullish USD supports spot prices.
- The bullish technical setup backs the case for an extension of a two-week-old uptrend.
The USD/CAD pair extends its consolidative price move through the early European session on Tuesday, trading below 1.4050, or the highest since August 6, amid mixed fundamental cues.
Crude oil prices stage a modest recovery from a nearly two-week low, snapping a four-day losing streak. Moreover, the Bank of Canada (BoC) Governor Tiff Macklem shifted toward a hawkish stance, warning that consecutive rate hikes may be needed if elevated energy prices and trade uncertainties pass through into generalized inflation. This, in turn, underpins the commodity-linked Loonie and acts as a headwind for the USD/CAD pair.
Meanwhile, the US Dollar (USD) preserves its bullish undertone against the backdrop of the US Federal Reserve's (Fed) hawkish outlook, signaling at least one more rate hike this year. Moreover, oil-driven inflation risks underpin prospects for further Fed tightening, which, along with persistent geopolitical uncertainties stemming from Middle East tensions, continue to benefit the safe-haven Greenback and lend support to the USD/CAD pair.
The overnight close above the 50% Fibonacci retracement level of the June-August decline was seen as a fresh trigger for bulls against the backdrop of the recent breakout through the 100-day Simple Moving Average (SMA). Moreover, momentum indicators reaffirm the bullish near-term bias and support the topside. In fact, the Moving Average Convergence Divergence (MACD) is showing the line above its signal and both above zero with a positive slope.
Meanwhile, the steady MACD histogram hints that buyers still have control, but the Relative Strength Index (14) near 65 is approaching moderately stretched territory. Hence, any further move up might confront immediate resistance near the 61.8% Fibo. retracement at 1.4052. Further up, the 78.6% retracement at 1.4138 guards the next bullish extension ahead of the recent cycle high at 1.4248.
On the downside, initial support is located at the 100-day SMA at 1.3953, followed by Fibonacci-backed demand around 1.3992 and 1.3932. A deeper pullback would expose lower structural floors at 1.3857 and 1.3736, where buyers would be expected to regroup to preserve the broader upward bias.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
USD/CAD daily chart
US Dollar FAQs
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.
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.
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.
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.