- USD/CAD softens to near 1.4350 in Tuesday’s early European session.
- The positive view of the pair prevails above the 100-day EMA with the bullish RSI indicator.
- The first upside barrier to watch is 1.4450; the initial support level is seen in the 1.4210-1.4200 zone.
The USD/CAD pair trades in negative territory around 1.4350 during the early European session on Tuesday. The recovery in crude oil prices lifts the commodity-linked Canadian Dollar (CAD) and creates a headwind for USD/CAD. However, the downside for the pair might be limited amid the rising bets that the Federal Reserve (Fed) will slow the pace of interest rate cuts in 2025. The markets are likely to be quiet ahead of the New Year holiday.
According to the daily chart, the constructive outlook of USD/CAD remains intact as the pair is above the key 100-period Exponential Moving Average (EMA). Additionally, the upward momentum is reinforced by the 14-day Relative Strength Index (RSI), which stands above the midline near 63.50, suggesting further upside looks favorable.
The immediate resistance level emerges at 1.4450, the high of December 27. Any follow-through buying above this level could see a rally to 1.4517, the upper boundary of the Bollinger Band. Further north, the next hurdle to watch is 1.4668, the high of March 16, 2020.
On the other hand, the initial support level for the pair is located at the 1.4210-1.4200 region, representing the low of December 13 and the psychological level. Extended losses could pave the way to 1.4042, the lower limit of the Bollinger Band. The additional downside filter to watch is 1.3955, the 100-day EMA.
USD/CAD daily chart
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD: Recovery remains capped below 1.0300
EUR/USD is consolidating its recovery below 1.0300 in the European morning on Friday. The pair breathes a sigh of relief as the US Dollar rally stalls even as markets stay cautious amid geopolitical risks and Trump's tariff plans. The focus remains on US ISM PMI data and central bank talks.
GBP/USD retakes 1.2400, as focus shifts to US ISM PMI data
GBP/USD rebounds to test 1.2400 in the European session on Friday. A minor pullback in the US Dollar allows the pair to find some respite after having lost over 1% on the outset of the New Year on Thursday. All eyes remain on the US ISM PMI data and Fedspeak for further impetus.
Gold takes out all key resistance levels; where next?
Gold price consolidates a two-day upsurge above $2,650 early Friday. The US Dollar stalls its uptrend amid sluggish US Treasury bond yields and a cautious mood. Gold price cheers geopolitical woes and a bullish daily RSI as buyers scale all key technical hurdles.
Bitcoin, Ethereum and Ripple eyes for a rally
Bitcoin’s price finds support around its key level, while Ethereum’s price is approaching its key resistance level; a firm close above it would signal a bullish trend. Ripple price trades within a symmetrical triangle on Friday, a breakout from which could signal a rally ahead.
Three Fundamentals: Year-end flows, Jobless Claims and ISM Manufacturing PMI stand out Premium
Money managers may adjust their portfolios ahead of the year-end. Weekly US Jobless Claims serve as the first meaningful release in 2025. The ISM Manufacturing PMI provides an initial indication ahead of Nonfarm Payrolls.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.