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USD/CAD Price Forecast: Rally to $1.3701 Amid Hawkish Federal Reserve Stance

In the European trading session today, the USD/CAD currency pair continued its upward trajectory, trading robustly around the 1.3683 level and reaching an intra-day high of 1.3701.
USD/CAD Price Chart - Source: Tradingview
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This sustained rise can largely be attributed to the reinforced strength of the US Dollar, buoyed by growing market consensus that the Federal Reserve will maintain elevated interest rates for an extended period.

Key Points:

  • The USD/CAD pair is buoyed by a strong U.S. dollar and falling oil prices.
  • Anticipation of sustained high U.S. interest rates underpins the currency pair’s strength.
  • Technical indicators support a continuing bullish trend for the USD/CAD.

Expectation of Higher US Interest Rates Boosts USD/CAD Pair

The dollar’s strength was further supported by anticipations of enduring high-interest rates set by the Federal Reserve, influenced by persistent inflation concerns.
Statements from Federal Reserve officials, including Michelle Bowman and Neel Kashkari, suggest no inclination towards rate cuts this year, with some, like Raphael Bostic, open to rate hikes if inflation escalates.
This prospect supports the USD and consequently, uplifts the USD/CAD pair. Market participants are keenly awaiting the Federal Open Market Committee’s (FOMC) meeting, where rates are expected to hold steady, with any hawkish commentary likely to propel the dollar further.

Bank of Canada Policy Rate and Oil Prices: Impact on USD/CAD

Conversely, the Canadian dollar has faced downward pressure due to declining oil prices, a critical export for Canada, which diminishes the currency’s demand. The focus now shifts to Canada’s economic health with the forthcoming release of the February Gross Domestic Product (GDP) figures.
Should these figures present weaker-than-expected results, the Bank of Canada might expedite interest rate cuts, potentially undermining the CAD. Conversely, stronger data might delay these cuts, providing temporary support to the CAD.
The downward trajectory in oil prices continues to play a pivotal role in the USD/CAD dynamics, with the Loonie’s weakness benefiting the currency pair.
Traders are also watching upcoming economic releases closely, including the Canadian GDP data and key U.S. economic indicators such as the Consumer Confidence Index and the forthcoming non-farm payroll figures, which could provide additional direction to the pair.

USD/CAD Price Forecast – Technical Outlook

Technically, the USD/CAD is experiencing bullish momentum, having recently surpassed its pivot point at $1.36911. The pair now faces immediate resistance at $1.37815, with additional barriers at $1.38479 and $1.39058. A successful breach of these could signal further gains.
USD/CAD Price Chart - Source: Tradingview
Conversely, support lies at $1.36540, $1.35949, and $1.34810, offering levels where declines could stabilize. The Relative Strength Index (RSI) at 66 indicates the market is nearing overbought conditions, yet there remains scope for upward movement.
The 50-Day Exponential Moving Average (EMA) at $1.36941 recently witnessed a bullish crossover, further endorsing the upward trajectory.

Conclusion:

The USD/CAD pair’s upward trend is set to continue, bolstered by a strong USD and softer CAD influenced by oil price dynamics and the Bank of Canada’s monetary policy outlook.
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Arslan Butt
Index & Commodity Analyst
Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.
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