1.4000: USD/CAD Price Forecast as Pair Trades Around This Level Within a Falling Wedge

1.3940 is a potential downside target for USD/CAD at the falling wedge’s lower boundary.
A decline towards 39 in the 14-day Relative Strength Index points to continued bearish momentum.
At 1.4042, the nine-day EMA provides the first major resistance.

USD/CAD trades near 1.3990. The pair remains under pressure for a second consecutive day during Thursday’s European session. On the daily chart, price action remains inside a falling wedge. This pattern points to weakening selling momentum and the possibility of a bullish breakout.

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

Trading below both the nine- and 50-period Exponential Moving Averages (EMAs), USD/CAD retains a bearish short-term bias. Its retreat from recent highs has taken the 14-day Relative Strength Index (RSI) down to roughly 39, indicating persistent bearish momentum rather than outright oversold conditions. Meanwhile, a reading of around 142 on the FXS Fed Sentiment Index points to a softer policy backdrop, which is not providing support for the exchange rate at this stage.

The falling wedge’s lower boundary, near 1.3940, could offer USD/CAD its first support. A downside break from the pattern could increase selling pressure towards the five-month low of 1.3732 set on 21 May. Below that, the next support is 1.3481, the lowest level since October 2024.

A recovery in USD/CAD could bring the main resistance cluster into focus, starting with the nine-day EMA at 1.4042. The 50-day EMA at 1.4060 follows, ahead of the falling wedge’s upper boundary near 1.4080. Clearing this cluster would create scope for a move towards 1.4299, the near 18-month high reached on 14 October.

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

BoC Rate Rise: Cautious Tightening Phase Seen Ahead

The Bank of Canada’s latest decision was largely expected, according to ING analysts, who note that the BoC “raised rates by 25bp to 2.50% yesterday, in line with market expectations.” In their assessment, “stronger activity and growing concerns about cost pass-through suggest this is unlikely to be a one-and-done move,” although policymakers stressed that they “will proceed carefully,” signalling a measured approach to further tightening.

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

Canadian Dollar: Key Questions

Canadian Dollar: Main Market Drivers

Interest rates set by the Bank of Canada (BoC), Oil prices, economic health, 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: a shift towards riskier assets, known as risk-on, supports CAD, whereas risk-off sentiment involves seeking safe havens. The health of the US economy is another major influence, given the US’s position as Canada’s largest trading partner.

Bank of Canada Decisions: Implications for the Canadian Dollar

By setting the interest rate at which banks lend to each other, the Bank of Canada (BoC) exerts considerable influence over the Canadian Dollar. That rate feeds through to borrowing costs across the economy. Keeping inflation within 1-3% is the BoC’s primary objective, pursued by raising or lowering interest rates. Relatively high rates generally support CAD. Credit conditions can also be influenced through quantitative easing or tightening: easing is negative for CAD, while tightening is positive.

Oil Prices: A Key Influence on the Canadian Dollar

As petroleum is Canada’s largest export, changes in Oil prices tend to affect the Canadian Dollar immediately, making Oil a major driver of its value. Rising Oil prices generally lift CAD by increasing overall demand for the currency; falling prices usually have the reverse effect. More expensive Oil also increases the likelihood of a trade surplus, providing further support for CAD.

Inflation Data: Effects on the Canadian Dollar

Traditionally, inflation was viewed as harmful to a currency because it erodes the value of money. In modern times, however, the relaxation 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. These inflows increase demand for the domestic currency, which in Canada is the Canadian Dollar.

Economic Data: What It Means for the Canadian Dollar

By providing a measure of economic health, macroeconomic releases can move the Canadian Dollar. 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 economic figures, by contrast, are likely to weigh on CAD.