1.4000: USD/CAD Price Forecast as pair trades near level with bearish bias intact

1.3732, the five-month low, is a potential downside target for USD/CAD.
Near 38, the 14-day Relative Strength Index signals that downward pressure may persist.
At 1.4069, the 50-day EMA provides the first resistance level.

USD/CAD is holding near 1.4010. The pair has stabilised in Friday’s Asian session following six consecutive days of declines. Its corrective retreat continues below the short- and medium-term moving averages, leaving the near-term outlook bearish. With spot below both the 50- and nine-day Exponential Moving Averages (EMAs), the recent fall has breached dynamic trend support levels that now serve as overhead resistance.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

The 14-day Relative Strength Index (RSI) remains close to 38 as momentum weakens. This suggests continued selling pressure rather than outright oversold conditions. Meanwhile, a reading near 127 on the FXS Fed Sentiment Index indicates a softer yet stable policy backdrop, offering little relief from the technical headwinds.

A further decline could take USD/CAD towards the area surrounding 1.3732, the five-month low reached on 21 May. Below that, support stands at 1.3481, the weakest level since October 2024.

A recovery in USD/CAD could encounter initial resistance at the 50-day EMA of 1.4069, ahead of the nine-day EMA at 1.4091. A move above both averages would support a test of 1.4299, the 18-month high reached on 14 October.

Chart Analysis USD/CAD — USD/CAD: Daily Price Chart

USD/CAD underpinned by widening North American growth gap in IMF revisions

The IMF’s latest projections strengthen the less favourable outlook for the Canadian Dollar relative to the US, according to strategists at Societe Generale. They observe that “with the IMF’s US growth forecast revised up to 2.5% this year (while remaining at 2.1% in 2027), the North American growth gap is widening.” The bank contrasts the accompanying chart, which “shows relative Bloomberg consensus growth forecasts for 2027,” with the IMF’s view, noting that “the IMF’s assessment (1.2% growth in Canada next year versus 2.1% in the US) is even less favourable for Canada.” Societe Generale also stresses the role of interest rate spreads against this macroeconomic backdrop. It refers to “the chart on the left” showing “the two-year rate differential plotted against USD/CAD,” highlighting the continued influence of relative growth and yield trends on the pair.

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

Canadian Dollar: Key Questions Answered

Canadian Dollar: Main Market Drivers

Bank of Canada (BoC) interest rates, Oil prices, economic conditions, inflation and the Trade Balance are the principal drivers of the Canadian Dollar (CAD). Oil is Canada’s largest export, while the Trade Balance measures the difference between the value of the country’s exports and imports. Investor sentiment also matters: demand for riskier assets, known as risk-on, supports CAD, whereas risk-off sentiment involves a shift towards safe-haven assets. The strength of the US economy is another important influence, given that the US is Canada’s largest trading partner.

Bank of Canada Decisions: Implications for CAD

By determining the interest rate at which banks lend to each other, the Bank of Canada (BoC) shapes borrowing costs across the economy and exerts substantial influence on the Canadian Dollar. Its primary objective is to keep inflation within 1-3%, raising or lowering interest rates as needed. Comparatively high rates generally support CAD. The Bank of Canada can also alter credit conditions through quantitative easing or quantitative tightening. Easing tends to weigh on CAD, while tightening tends to strengthen it.

Oil Prices: A Key Driver of CAD

As Canada’s largest export, petroleum gives Oil prices a direct role in the Canadian Dollar’s valuation. Changes in Oil prices therefore tend to affect CAD immediately. Rising Oil prices generally lift the currency by increasing overall demand for it; falling prices usually have the reverse effect. More expensive Oil also increases the likelihood of a positive Trade Balance, providing further support for CAD.

Inflation Data: The Effect on CAD

Inflation traditionally carried negative implications for a currency because it erodes purchasing power. In modern times, however, the easing of cross-border capital controls has reversed that relationship. Higher inflation typically prompts central banks to raise interest rates, drawing capital from international investors seeking attractive returns. Those inflows increase demand for the domestic currency, which in Canada is the Canadian Dollar.

Economic Data: Signals for the Canadian Dollar

The Canadian Dollar can respond to macroeconomic releases that reveal the economy’s condition. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys all help shape CAD’s direction. Economic strength supports the currency by attracting foreign investment and potentially encouraging the Bank of Canada to raise interest rates. Weak data, by contrast, is likely to push CAD lower.