Key Moments
- USD/CAD finds support near 1.3645 but remains capped below 1.3700 in early European trading.
- Fresh U.S. Dollar selling and weaker Oil prices create opposing forces for the pair.
- Bearish technical structure, including a potential double-top and a declining 200-SMA on H4, favors further downside.
Range-Bound Trade as Opposing Forces Offset
USD/CAD begins the new week with a cautious tone, as traders remain hesitant amid conflicting market drivers. The pair has attracted some buying interest around the 1.3645 area on Monday, halting a late pullback from last week’s approach toward a monthly peak. However, the recovery lacks conviction, with spot levels still unable to secure a move above the 1.3700 threshold during the early European session.
The U.S. Dollar starts the week under pressure, extending a retreat from its strongest reading since January. Market participants react to US President Donald Trump’s announcement of new 15% global tariffs, which has triggered renewed “sell America” flows. This softens the Dollar and weighs on USD/CAD.
At the same time, Crude Oil prices edge lower from their highest levels in more than six months. Concerns over the economic impact of the trade conflict and the potential drag on fuel demand are pressuring Oil, which in turn undermines the commodity-linked Canadian Dollar. That weakness in the Loonie provides some offsetting support to USD/CAD, limiting the downside in the pair.
Technical Structure Favors Sellers
From a chart perspective, USD/CAD continues to face firm resistance in the 1.3700 area. Multiple unsuccessful attempts to establish a foothold above that level on the daily time frame have carved out what appears to be a bearish double-top formation.
On the 4-hour chart, the technical backdrop leans in favor of sellers. The 200-period Simple Moving Average is trending lower around 1.3718, reinforcing the downside bias. Price action remains beneath this moving average, which is acting as dynamic resistance and consistently capping rebound attempts.
| Technical Indicator | Current Reading / Behavior | Implication |
|---|---|---|
| Key resistance zone | 1.3700 region | Repeated failures suggest a potential double-top pattern |
| 200-period SMA (H4) | Sloping lower at 1.3718 | Acts as dynamic resistance and supports a bearish bias |
| MACD (H4) | Line below Signal near zero; histogram deeper in negative | Indicates strengthening bearish momentum |
| RSI (H4) | 49, just under midline | Neutral but pointing to waning demand |
Momentum gauges are broadly aligned with this negative bias. The Moving Average Convergence Divergence line is positioned beneath its Signal line around the zero level, and the histogram has extended further into negative territory, signaling firmer downside momentum. The Relative Strength Index stands at 49, marginally under the midpoint, reflecting neutral conditions but hinting at easing buying interest.
A sustained move back above the 200-period SMA on the 4-hour chart would alleviate some of the immediate downside pressure. Until that occurs, the inability to reclaim this moving average is likely to keep control with sellers and maintain the risk of additional short-term depreciation in USD/CAD.
(The technical analysis of this story was written with the help of an AI tool.)
Canadian Dollar: Key Fundamental Drivers
Several core factors influence the Canadian Dollar (CAD), including interest rate settings from the Bank of Canada (BoC), the trajectory of Oil prices given Canada’s export profile, the overall health of the domestic economy, inflation dynamics, and the country’s Trade Balance. Broader risk sentiment – whether markets are in a risk-on or risk-off mode – also plays a role, with risk-on conditions generally supportive for CAD. In addition, developments in the U.S. economy are particularly important due to the close trade relationship between the two countries.
Role of the Bank of Canada in CAD Valuation
The BoC shapes the interest rate environment by determining the rate at which financial institutions lend to each other, influencing borrowing costs across the economy. Its primary objective is to keep inflation within a 1-3% range, adjusting rates higher or lower to achieve that goal. Higher relative interest rates tend to be supportive for CAD. The central bank can also deploy quantitative easing or tightening to alter credit conditions, with easing generally negative for CAD and tightening typically positive.
Oil Prices, Inflation, and Macroeconomic Data
Oil prices are a central driver for CAD, as petroleum is Canada’s largest export. Moves in Oil markets often translate quickly into CAD fluctuations: rising Oil prices are commonly associated with CAD strength due to increased demand for the currency, while falling prices can have the opposite effect. Stronger Oil prices also improve the likelihood of a favorable Trade Balance, which is another tailwind for CAD.
In the current environment of relatively open capital flows, higher inflation often prompts central banks to lift interest rates, attracting foreign capital in search of higher yields. For Canada, this mechanism can support the Canadian Dollar when inflation pressures lead to tighter monetary policy.
Macroeconomic indicators such as GDP, Manufacturing and Services PMIs, labor market figures, and consumer confidence surveys provide ongoing assessments of Canada’s economic strength. Robust data tend to bolster CAD by drawing in investment and increasing the probability of higher interest rates from the BoC. Conversely, weaker releases can weigh on the currency as growth and policy expectations are reassessed.
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