The USD/CAD pair trades on a softer note near 1.3730 during the early European session on Thursday. Surging oil prices due to escalating Middle East tensions provide some support to the commodity-linked Loonie against the US Dollar (USD).
The Bank of Canada (BoC) held the overnight interest rate steady at 2.25% on Wednesday. This is the third consecutive time the rate has remained unchanged since it was lowered to this level in October 2025.
BoC Governor Tiff Macklem said during the press conference that the war in Iran has added “a new layer of uncertainty” against that backdrop, and Canada is facing even more volatility than before. He added that the central bank will look through immediate oil-driven inflation for now but is prepared to act if these costs lead to persistent and broader inflation.
The US Federal Reserve (Fed) on Wednesday decided to maintain its target range for the federal funds rate at 3.50-3.75%, as widely expected. Fed policymakers signaled a quarter of a percentage point rate cut by the end of this year, a view that on the surface was unchanged from their last set of projections in December.
Technical Analysis:
In the daily chart, the near-term bias of USD/CAD turns mildly bullish as price rebounds from last week’s lows and pushes back toward the upper half of the recent range, while remaining below the gently descending 100-day EMA near 1.3750, which still caps the broader uptrend. The latest Bollinger structure shows spot holding above the middle band around 1.37 and edging toward the upper band near 1.38, signalling recovering upside momentum after a period of compressed volatility. RSI has climbed back toward 58 from sub-40 readings, confirming strengthening bullish pressure without yet reaching overbought territory.
Initial resistance stands at 1.3750, where the 100-day EMA converges with the upper Bollinger Band, and a daily close above this area would open the way toward 1.3830 and then 1.3900. On the downside, immediate support is at 1.3680 around the middle Bollinger Band, followed by 1.3640, with a break below exposing the lower band and recent floor near 1.3580.
(The technical analysis of this story was written with the help of an AI tool.)
Canadian Dollar FAQs
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 seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences 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 higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge 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 all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
