USD/CAD Price Forecast: Mildly Bullish Bias Persists Above Key Support Despite Fall Below 1.4100

• Selling pressure takes USD/CAD towards 1.4080 as European trading gets under way on Tuesday.
• Trading above the crucial 100-day SMA keeps the pair’s outlook constructive.
• Resistance first comes into focus at 1.4129, while immediate support stands at 1.4040.

Buying interest in the Canadian Dollar (CAD), supported by elevated crude oil prices, weighs on the US Dollar (USD) in early European trading on Tuesday. USD/CAD is consequently trading lower, around 1.4080.

The Strait of Hormuz has not yet been completely closed by Tehran, Iran’s Islamic Revolutionary Guard Corps (IRGC) said on Monday. It added that the blockade could be extended to the Bab al-Mandeb Strait and the Suez Canal.

Separately, the Houthis said on Monday that they had attacked King Khalid International Airport in Riyadh, Saudi Aramco facilities in Yanbu on the Red Sea Coast, the Shaybah oilfield and Saudi naval forces. Higher crude prices generally support the Loonie, given Canada’s position as a major oil exporter.

September’s headline Consumer Price Index (CPI) increased by 0.1% month-on-month (MoM), following a 0.1% fall in August, according to figures published by Statistics Canada earlier this week. The monthly increase fell short of the 0.2% forecast. Annual CPI inflation also undershot the market consensus of 3.2%, although it edged up to 3.1% in September from 3.0% in the preceding reading.

According to Reuters, money markets expect the Bank of Canada (BoC) to leave its rate unchanged at 2.25% on 28 October, but are factoring in a 25-basis-point increase in December.

Can the BoC balance weaker data against inflation risks?

A weakening domestic economy and persistent price pressures leave the Bank of Canada facing “an uncomfortable balance”, economists at Royal Bank of Canada argue. In their assessment, “softer labour-market data and higher fixed borrowing costs give policymakers room to remain patient,” reinforcing their “base-case forecast” that “the Bank will hold the overnight rate unchanged through the remainder of 2026 before gradually raising rates in 2027.”

The case for keeping policy unchanged for an extended period is complicated, however, by inflation risks. RBC warns that policymakers “remain alert to the risk that persistently elevated oil prices lift inflation expectations or generate broader second-round price pressures,” while also noting that “recent communication from the Bank of Canada and Governor Macklem are denoting more urgency than the data to date might suggest and add to the risk the Bank chooses to move preemptively,” highlighting the possibility of a departure from the current wait-and-see approach.

Technical Analysis: Can USD/CAD retain its modest bullish bias above the 100-day SMA?

A position above the 100-day simple moving average (SMA) leaves USD/CAD with a modestly bullish near-term outlook on the daily chart, with that average providing support for the broader uptrend. Although the price is testing the lower Bollinger Band and the middle band remains above it, the scope for gains persists alongside nearby selling pressure. At 44, the Relative Strength Index (RSI) points to neutral-to-weak momentum, suggesting buyers may require fresh catalysts to push gains towards the upper band.

The 28 July high of 1.4129 presents the first resistance on any advance. Beyond that, the middle Bollinger Band at 1.4195 provides the next obstacle, followed by the upper Bollinger Band near 1.4310. 

The 100-day SMA at 1.4040 provides crucial downside support. Should the pair close below it on a daily basis, the constructive outlook would weaken, bringing the 18 September low of 1.3976 into view ahead of the 31 August high of 1.3912. 

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