USD/CAD continued to trade sideways during the North American session on Wednesday, remaining flat at around 1.3658, as the pair looks limited by April 20 price action, which saw the loonie appreciate 0.34% against the US dollar.
USD/CAD Price Forecast: Technical Outlook
On April 20, USD/CAD reached a daily high of 1.3709 and closed near a low of 1.3635, extending a six-day streak of bearish sessions. Nevertheless, the bulls moved ahead, ending April 21 in the green, up 0.15%, and forming a ‘bullish piercing pattern’ that needs to clear the current week’s high of 1.3709 to advance further.
The momentum has shifted to the downside, as indicated by the Relative Strength Index (RSI). Therefore, if sellers push forward and surpass the April 21 swing low at 1.3631, a move towards the 1.3600 figure could be in the offing. Below, the next area of interest is the March 9 daily low at 1.3525.
On the positive side, buyers need to cross the 1.3700 mark, with immediate resistance seen at the 50-day simple moving average (SMA) at 1.3727. The next 100-day SMA is at 1.3742, the next supply zone is at 1.3800.
USD/CAD Price Chart – Daily
Canadian Dollar FAQ
The key factors driving the Canadian dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of oil, Canada’s largest export, the health of its economy, inflation, and the trade balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or looking for safer assets (risk-free) – with risk-on CAD being positive. As its largest trading partner, the health of the US economy is also a major factor influencing the Canadian dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian dollar, setting the level of interest rates that banks can lend to each other. This affects the level of interest rates for everyone. The main goal of the BOC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively high interest rates are positive for CAD. The Bank of Canada may also use quantitative easing and tightening to influence credit conditions, with the former being CAD-negative and the latter CAD-positive.
The price of oil is a major factor influencing the value of the Canadian dollar. Petroleum is Canada’s largest export, so the price of oil has an immediate impact on the CAD value. Generally, if the price of oil increases, the CAD also increases, as aggregate demand for the currency increases. The situation is opposite if the price of oil falls. Higher oil prices also increase the likelihood of a positive trade balance, which is also supportive for the CAD.
While inflation was traditionally thought of as a negative factor for a currency as it reduces the value of money, in modern times with the relaxation of cross-border capital controls the opposite has actually become the case. High inflation prompts central banks to raise interest rates, which attracts more capital inflows from global investors looking for an attractive place to keep their money. This increases the demand for the local currency, which in the case of Canada is the Canadian dollar.
Macroeconomic data releases reveal the health of the economy and can have an impact on the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can influence the direction of the CAD. A strong economy is good for the Canadian dollar. This not only attracts more foreign investment but it may encourage the Bank of Canada to raise interest rates, thereby strengthening the currency. However, if economic data is weak, the CAD is likely to fall.
