USD/CAD increased to around 1.3690 during the early European session on Thursday. The pair remains below the 100-day EMA on the daily chart, maintaining a bearish perspective. Immediate resistance is at 1.3750, while initial support is identified at 1.3490. Kevin Warsh’s expected appointment as US Federal Reserve Chair in 2026 supports the USD, with markets anticipating the Fed will hold rates steady in March. There may be a total reduction of 50 to 75 basis points by year-end.
Geopolitical risks might lift crude oil prices, potentially benefiting the Canadian Dollar (CAD) due to Canada’s status as a leading oil exporter. On the daily chart, the USD/CAD faces ongoing bearish pressure as the 100-EMA slopes downward. RSI stands at 46, with signs of stabilisation. If the price climbs above 1.3750, targets are 1.3813 and 1.4012, while further declines may reach 1.3490.
Canadian Dollar Drivers
The Canadian Dollar is driven by factors like BoC interest rates, oil prices, economic health, inflation, and trade balance. Higher oil prices and positive economic indicators generally benefit the CAD. Inflation can lead to higher interest rates, attracting capital inflows. Economic strength encourages foreign investment and interest rate hikes, bolstering the CAD.
As we see it today, the USD/CAD is showing a bearish tendency while trading below the 100-day moving average near 1.3690. This technical picture suggests downward pressure, with a strong resistance level at 1.3750 and initial support located at 1.3490. This setup points towards potential weakness in the pair over the short term.
However, fundamental factors from the United States are providing solid support for the US dollar. The latest Consumer Price Index (CPI) reading for January 2026 showed inflation ticked up to 3.2%, reducing the odds of a Federal Reserve rate cut in March to below 10%, according to the CME FedWatch Tool. Talk of a more hawkish Fed chair succeeding Jerome Powell in May is also adding to dollar strength, limiting the downside for USD/CAD.
Meanwhile, the Canadian dollar is being propped up by rising crude oil prices, a key Canadian export. Geopolitical tensions have pushed WTI crude prices to over $85 a barrel, which is a significant tailwind for the loonie. The Bank of Canada is also doing its part, holding interest rates steady at 4.5% as Canadian inflation remains stickier than desired.
Volatility and Trading Strategies
We have to remember the volatility we experienced through 2025, where market sentiment on interest rates shifted dramatically on single data points. The pair saw several sharp reversals last year when employment data surprised analysts on both sides of the border. This history suggests we should be cautious of the current technical trend holding firm if unexpected economic news is released.
Given these conflicting signals, a straight directional trade is high-risk. Derivative traders should consider strategies that benefit from the pair staying within a defined range, as the strong technical resistance and fundamental support could keep it contained. An options strategy built around the key 1.3490 to 1.3750 levels could be a prudent way to navigate the opposing pressures in the coming weeks.
