USD/CAD Near 1.3700 as Dollar Strength Counters Loonie

Key Moments

Dollar Strength Supports USD/CAD Near Recent Highs

The USD/CAD pair is trading near 1.3700 during the European session on Thursday, maintaining the advance seen on Wednesday. The pair remains underpinned by a broadly firm US Dollar following the release of the Federal Open Market Committee (FOMC) minutes from the January policy meeting on Wednesday.

At the time of writing, the US Dollar Index (DXY), which tracks the performance of the Greenback against a basket of six major currencies, is hovering close to Wednesday’s high around 97.80, holding on to recent gains.

Fed Minutes Point to Patience on Rate Cuts

The minutes from the Federal Reserve’s January meeting showed that policymakers are not inclined to lower interest rates in the near term unless they observe clear and meaningful progress toward bringing inflation back to the central bank’s 2% target. This stance has helped keep the US Dollar supported, contributing to the strength in USD/CAD.

Canadian Dollar Remains Soft Despite Steady BoC Outlook

The Canadian Dollar is trading on the weaker side, even as expectations point to a prolonged period of stable policy from the Bank of Canada. According to a Reuters poll, market participants anticipate that the BoC will keep interest rates unchanged at 2.25% through 2026.

The survey suggests the central bank is unlikely to alter its monetary policy stance this year, with inflation pressures remaining close to the BoC’s 2% target, reducing the urgency for any rate adjustments.

USD/CAD Technical Picture

USD/CAD is showing resilience around the 1.3700 level as of the latest pricing. The 20-day Exponential Moving Average (EMA) has slowed its earlier downward slope and is now starting to flatten, indicating that recent downside pressure is easing. A daily close above this moving average would support the case for an ongoing recovery in the pair.

The 14-day Relative Strength Index (RSI) stands at 52, a neutral reading that aligns with a stabilization in momentum.

Price is trading just above the 20-day EMA, placing initial support near 1.3662. On the downside, the 1.3500 psychological area remains an important support zone. On the upside, a sustained move above the 20-day EMA could allow the pair to extend gains toward the February 6 high at 1.3740. A break and hold above 1.3740 would then leave room for a potential push toward the 1.3800 round figure.

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

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.

When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.

When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.

The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.