The Canadian Dollar is largely unchanged, following a day of gains as markets stabilise. Analysts indicate possibilities of further USD/CAD losses are evident, driven by technical patterns.
Prime Minister Carney discussed the necessity for Canada to form new international relationships amid shifting global dynamics. Despite rising commodity prices, domestic terms of trade remain subdued due to low crude oil prices.
Bearish Pattern
The bearish pattern seen suggests a short-term risk of further USD/CAD depreciation. The loss of USD support in the mid-1.38 range could lead to a decrease to 1.3785/90, with potential further drops below 1.37.
Surging metal prices are not currently benefiting CAD as much as the Australian Dollar or Chilean Peso. Resistance is predicted at 1.3850/55, then 1.3890/00.
This analysis doesn’t offer personalised recommendations, and the reader is encouraged to conduct their own research. Market data contain inherent risks and uncertainties, emphasising the necessity for thorough personal evaluation.
The Canadian Dollar is consolidating its recent strength, and the technical setup on the USD/CAD hourly chart points to further downside for the pair. We see this bearish flag pattern as a signal to prepare for another move lower in the coming days. The immediate focus should be on playing for a stronger Canadian Dollar against its US counterpart.
Break Of Support
Our view is that a break of support in the mid-1.38 range targets a drop to the 1.3785 level. Traders could consider buying put options with a 1.3750 strike expiring in the next two to three weeks to capitalize on this expected move. Resistance at 1.3850 should cap any short-term rallies in the US dollar.
We’ve noted that the loonie’s historic relationship with oil has weakened, a trend that became clear in 2025. The 90-day correlation between the CAD and WTI crude prices has fallen to just 0.4, down from its typical range above 0.7. This means that even with sluggish crude prices, the CAD can find support elsewhere, particularly from strong base metal prices.
Recent commitment of traders reports show that large speculators have flipped to a net-long position on the Canadian dollar for the first time in over eight months. This shift from the heavy net-short positioning seen through much of last year indicates that institutional sentiment is now aligning with a stronger CAD. We see this as confirmation of the underlying trend.
The interest rate differential continues to favor the Canadian dollar, as the Bank of Canada has held its policy rate steady at 5.0% while futures markets are pricing in a greater chance of a Federal Reserve rate cut by mid-year. This policy divergence is a core reason for our medium-term bullish outlook on the CAD. We expect this to provide a solid floor for the currency.
Given that implied volatility in USD/CAD options has fallen to its lowest level in three months, strategies like purchasing puts are relatively inexpensive right now. This is a stark contrast to the volatility we saw during the political noise from Davos this time last year. This environment presents a favorable risk-reward opportunity to position for more USD/CAD weakness.
