USD/CAD Nears Channel Support as Bears Gain Control

Key Moments

USD/CAD trades near 1.3680 and has fallen for six consecutive sessions within a newly formed descending channel.
The pair remains below both the nine-day and 50-day EMAs, with the 14-day RSI at 32 and declining, signaling weakening momentum.
A break below the channel could open a move toward the six-month low at 1.3642 and then 1.3539, while resistance is capped near the nine-day EMA at 1.3787.

Technical Overview of USD/CAD

USD/CAD extends its decline for a sixth straight session, trading around 1.3680 during Asian hours on Monday. Price action on the daily chart shows the pair moving lower within a recently established descending channel, reflecting a sustained bearish tone.

The 14-day Relative Strength Index stands at 32 and continues to edge down, placing it near oversold territory and underscoring the deterioration in bullish momentum.

Moving Averages and Trend Bias

The pair is trading beneath both the nine-day Exponential Moving Average and the 50-day Exponential Moving Average, which keeps short-term sentiment under pressure. The shorter-term EMA remains below the longer-term EMA, and both are sloping lower, reinforcing the downside bias in the trend.

Technical Level	Price	Context
Nine-day EMA (resistance)	1.3787	Aligned with upper boundary of descending channel
50-day EMA (resistance)	1.3838	Next resistance if price breaks above nine-day EMA
Six-month low	1.3642	Recorded on December 26
Key support below 6-month low	1.3539	Lowest level since October 2024
Seven-week high	1.3928	Reached on January 16

Key Support and Resistance Levels

A clear move below the descending channel would confirm the prevailing bearish bias and could intensify downside pressure, bringing the six-month low at 1.3642, set on December 26, into focus. A further break lower would turn attention to 1.3539, described as the lowest level since October 2024.

On the upside, initial resistance is clustered around the nine-day EMA at 1.3787, which coincides with the upper boundary of the descending channel. A sustained break above this area would shift focus toward the 50-day EMA at 1.3838, with additional resistance at the seven-week high of 1.3928, reached on January 16.

USD/CAD Daily Chart Reference

USD/CAD: Daily Chart

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

Canadian Dollar: Key Drivers

The following information provides general background on the main factors influencing the Canadian Dollar (CAD):

Primary Influences on the Canadian Dollar

The main drivers of the Canadian Dollar are the interest rate levels set by the Bank of Canada (BoC), the price of Oil as Canada’s most significant export, the strength of the domestic economy, inflation dynamics, and the Trade Balance, which measures the gap between the value of exports and imports. Market sentiment also plays a role – periods of increased risk appetite (risk-on) tend to support CAD, while flights to safety (risk-off) tend to weigh on it. Given Canada’s close economic ties with the United States, conditions in the US economy are also an important influence on CAD.

Bank of Canada Policy and CAD

The Bank of Canada directly impacts the Canadian Dollar through its policy interest rate, which determines the rate at which financial institutions lend to each other and, by extension, affects borrowing costs across the economy. The BoC’s primary objective is to keep inflation within a 1-3% range by raising or lowering rates as needed. Relatively higher interest rates are typically supportive for CAD. The central bank can also implement quantitative easing or quantitative tightening to shape credit conditions, with the former generally seen as negative for CAD and the latter as positive.

Oil Prices and the Canadian Dollar

Because petroleum is Canada’s largest export, movements in Oil prices tend to have a direct impact on the Canadian Dollar. Rising Oil prices usually coincide with increased demand for CAD, pushing the currency higher, while falling Oil prices tend to have the opposite effect. Stronger Oil prices also increase the likelihood of a positive Trade Balance, which can further underpin the currency.

Inflation and Its Currency Impact

Although inflation has traditionally been viewed as negative for a currency, more flexible cross-border capital flows have altered that relationship. In current practice, higher inflation often prompts central banks to raise interest rates, attracting foreign capital seeking higher returns. This increased demand for the domestic currency, in Canada’s case the Canadian Dollar, can support its value.

Macroeconomic Data and CAD Performance

Economic indicators that gauge the overall health of the Canadian economy can significantly influence the direction of CAD. Key releases include GDP, Manufacturing and Services PMIs, labor market data, and consumer confidence surveys. Strong readings tend to be positive for the Canadian Dollar as they may attract foreign investment and potentially encourage the Bank of Canada to raise interest rates. Conversely, weaker data often weighs on the currency.