USD/CAD Price Forecast: What lies ahead as the pair trades near 1.4000 within a falling wedge?

Further weakness in USD/CAD could take the pair towards the falling wedge’s lower boundary near 1.3940.
Bearish momentum appears to persist as the 14-day Relative Strength Index eases to around 39.
At 1.4042, the nine-day EMA marks the first key resistance.

Selling pressure continues to weigh on USD/CAD for a second consecutive day, with the pair hovering near 1.3990 in Thursday’s European session. On the daily chart, however, prices remain inside a falling wedge. This pattern points to waning selling momentum and the possibility of a bullish breakout.

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

A bearish short-term outlook persists while USD/CAD trades below both its nine- and 50-period Exponential Moving Averages (EMAs). Following a pullback from recent highs, the 14-day Relative Strength Index (RSI) has eased to about 39, indicating ongoing 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 supporting the exchange rate at this stage.

Initial support for USD/CAD could emerge near 1.3940, where the falling wedge’s lower boundary lies. Should the pair break beneath the wedge, renewed downward pressure could take it towards the five-month low of 1.3732 recorded on 21 May. Below that, 1.3481, the lowest level since October 2024, provides further support.

A recovery in USD/CAD could bring the main resistance confluence into focus, beginning with the nine-day EMA near 1.4042. The next barriers are the 50-day EMA at 1.4060 and the falling wedge’s upper boundary around 1.4080. A move beyond this confluence would clear the way towards the region of 1.4299, the nearly 18-month high recorded on 14 October.

Chart Analysis USD/CAD — USD/CAD: What Does the Daily Chart Show?

Does the BoC hike mark the start of cautious tightening?

ING analysts describe the Bank of Canada’s latest decision as largely expected, noting that the BoC “raised rates by 25bp to 2.50% yesterday, in line with market expectations.” In their view, “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 Answered

Which factors shape the Canadian Dollar’s performance?

The Canadian Dollar (CAD) responds to several key drivers: interest rates set by the Bank of Canada (BoC), the price of oil, Canada’s largest export, economic conditions, inflation and the trade balance. The trade balance measures the difference between the value of Canada’s exports and imports. Investor sentiment also matters: an appetite for riskier assets, known as risk-on, generally supports the CAD, while a preference for safe havens reflects risk-off conditions. Economic conditions in the US are another important influence, given its position as Canada’s largest trading partner.

Why do Bank of Canada decisions matter for the Canadian Dollar?

By determining the interest rate at which banks lend to each other, the Bank of Canada (BoC) exerts considerable influence over the Canadian Dollar. This rate, in turn, affects borrowing rates across the economy. The BoC’s primary objective is to keep inflation within 1-3%, raising or lowering interest rates to achieve that goal. Higher rates relative to those elsewhere generally support the CAD. Credit conditions can also be influenced through quantitative easing, which is negative for the CAD, or quantitative tightening, which is positive for the currency.

Why is the Canadian Dollar sensitive to oil prices?

Oil prices are a major influence on the Canadian Dollar because petroleum is Canada’s largest export. Changes in oil prices therefore tend to feed through immediately to the CAD. Rising oil prices generally lift aggregate demand for the currency and support its value; falling prices typically have the opposite effect. Costlier oil also increases the likelihood of a positive trade balance, providing additional support for the CAD.

What does inflation mean for the Canadian Dollar?

Traditionally, inflation was regarded as harmful to a currency because it erodes the value of money. With cross-border capital controls becoming less restrictive in modern times, however, the relationship has reversed. Higher inflation often prompts central banks to raise interest rates, drawing capital from global investors seeking attractive returns. The resulting inflows increase demand for the domestic currency, which in Canada is the Canadian Dollar.

Why does economic data matter for the Canadian Dollar?

The Canadian Dollar can respond to macroeconomic releases because they offer a measure of the economy’s health. GDP, manufacturing and services PMIs, employment figures and consumer sentiment surveys can all shape the 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 readings, by contrast, are likely to weigh on the CAD.