In early European trading on Thursday, the USD/CAD pair is gaining strength near 1.3690. The expectation of a slower pace of interest rate cuts from the United States Federal Reserve (Fed) following the replacement of Jerome Powell as Fed Chair by Kevin Warsh in May 2026 will support the US Dollar (USD) against the Canadian Dollar (CAD). Financial markets are pricing in a nearly 90% chance that the Fed will keep interest rates on hold at its March policy meeting, expecting a total of 50 to 75 basis points (bps) of easing by the end of the year.
Meanwhile, rising geopolitical risks could lift oil prices and provide some support for commodities-related company Loonie. It is worth noting that Canada is a major oil exporting country and high oil prices generally have a positive impact on CAD.
Technical analysis:
On the daily chart, the USD/CAD pair remains capped below the 100-EMA. The average slope is decreasing, maintaining a bearish bias. The RSI at 46 (neutral) increased, which indicates stabilization of dynamics. Bollinger Bands are tilting downwards and prices are moving below the middle band, reflecting continued bearish pressure. If the bulls reclaimed 1.3750, the gains would head towards the 100-EMA at 1.3813 and the upper band at 1.4012, while a fresh decline would expose 1.3490.
(The technical analysis for this story was written with the assist of an AI tool.)
Canadian Dollar FAQs
The key factors shaping the Canadian dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of crude oil, which is Canada’s largest export, the condition of its economy, inflation and the trade balance, i.e. the difference between the value of Canadian exports and imports. Other factors include market sentiment – whether investors are taking on riskier assets (with risk) or looking for secure havens (with risk), with risk being positive relative to CAD. As the United States’ largest trading partner, the health of the U.S. economy is also a key factor influencing the exchange rate of the Canadian dollar.
The Bank of Canada (BoC) has significant influence over the Canadian dollar by setting the interest rates that banks can lend to each other. This affects the level of interest rates for everyone. The main goal of the BoC is to keep inflation at 1-3% by raising or lowering interest rates. Relatively higher interest rates tend to benefit CAD. The Bank of Canada may also operate quantitative easing and tightening to influence lending terms, with the former being CAD negative and the latter CAD positive.
The price of oil is a key factor influencing the value of the Canadian dollar. Oil is Canada’s largest export, so the price of oil usually has a direct impact on the value of CAD. Generally speaking, if the price of oil increases, CAD also increases because aggregate demand for the currency increases. The opposite is true when the price of oil falls. Higher oil prices also tend to result in a greater likelihood of a positive trade balance, which also supports CAD.
While inflation has always traditionally been considered a negative factor for currency because it reduces the value of money, in contemporary times the opposite has been true with the relaxation of cross-border capital controls. Higher inflation prompts central banks to raise interest rates, which attracts more capital inflows from global investors looking for 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 are used to assess the condition of the economy and may affect the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can influence the direction of CAD. A forceful economy is good for the Canadian dollar. Not only will it attract more foreign investment, but it could encourage the Bank of Canada to raise interest rates, leading to a stronger currency. However, if economic data is delicate, CAD will likely decline.
