USD/CAD Stuck Below 1.3700 as Bears Take Control

Key Moments

USD/CAD Edges Higher but Stays Under 100-Day EMA

USD/CAD is trading modestly higher around 1.3690 during Thursday’s early European session. Despite the slight uptick, the pair continues to exhibit a bearish profile on the daily chart as it remains capped beneath the 100-day exponential moving average (EMA). Immediate resistance is identified at 1.3750, while initial downside support is seen at 1.3490.

Fed Policy Expectations Support the US Dollar

The pair is drawing support from expectations that the US Federal Reserve will move cautiously on interest rate reductions. The outlook for a slower pace of rate cuts, alongside the prospect that Kevin Warsh is to succeed Jerome Powell as Fed Chair in May 2026, is lending strength to the US Dollar (USD) relative to the Canadian Dollar (CAD).

Financial markets are currently assigning nearly a 90% probability that the Fed will keep rates unchanged at its March policy meeting. Investors are also anticipating a cumulative 50 to 75 basis points (bps) of easing by the end of the year.

Geopolitics and Oil Offer Some Support to the Loonie

Rising geopolitical tensions could lift crude oil prices, which may, in turn, provide some support to the commodity-linked Canadian Dollar. Canada is a major exporter of oil, and elevated crude prices generally tend to favor the CAD.

Technical Picture: Bias Remains to the Downside

On the daily timeframe, USD/CAD continues to trade beneath the 100-day EMA, reinforcing a bearish structure. The moving average is sloping lower, consistent with a downside bias. The Relative Strength Index (RSI) stands at 46, which is in neutral territory, and has ticked higher, signaling that momentum is stabilizing rather than deteriorating further.

Bollinger Bands on the daily chart are tilted lower, and spot prices are holding below the middle band, pointing to sustained selling pressure. A recovery above 1.3750 would be needed to challenge the next technical barriers at the 100-day EMA, located at 1.3813, and the upper Bollinger Band at 1.4012. On the downside, a renewed move lower would open the door for a test of support at 1.3490.

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

Canadian Dollar: Key Drivers

Several core factors shape the trajectory of the Canadian Dollar. These include the interest rate stance of the Bank of Canada (BoC), movements in oil prices, overall economic performance, inflation trends, and the trade balance, defined as the gap between the value of exports and imports. Market risk appetite also plays a role, with risk-on environments generally favoring the CAD, while risk-off backdrops tend to weigh on it. Given the close economic ties, conditions in the US economy are another crucial influence on the currency.

Role of the Bank of Canada

The Bank of Canada exerts significant control over the CAD through its policy rate, which affects borrowing costs across the economy. The BoC’s main objective is to keep inflation within a 1-3% band by raising or cutting interest rates as needed. Higher relative interest rates are typically supportive for the Canadian Dollar. The central bank can also deploy quantitative easing or quantitative tightening to manage credit conditions, with easing generally seen as negative for CAD and tightening as supportive.

Oil Prices and Their Direct Impact on CAD

Oil prices are a central driver for the Canadian Dollar because petroleum is Canada’s largest export. Shifts in crude prices tend to filter quickly into the value of the CAD. When oil prices rise, demand for the Canadian currency tends to increase, often resulting in a stronger CAD. Conversely, falling oil prices can exert downward pressure. Higher crude prices also make a positive trade balance more likely, which is another supportive factor for the currency.

Inflation Dynamics and the Canadian Dollar

In the current environment of relatively open capital flows, higher inflation can be associated with currency strength if it leads the central bank to tighten policy. When inflation accelerates, central banks, including the BoC, may respond with rate hikes, drawing in foreign capital in search of higher yields. This can increase demand for the Canadian Dollar.

Economic Data and Market Reaction

Macroeconomic indicators play a pivotal role in shaping expectations for the Canadian Dollar. Releases such as GDP, Manufacturing and Services PMIs, labor market data, and consumer sentiment surveys provide insight into the health of the economy. Strong data tend to be favorable for CAD because they can attract foreign investment and potentially prompt the BoC to consider higher interest rates. Weak data, by contrast, often pressure the currency lower.