In early European trading on Wednesday, the USD/CAD pair is in positive territory around 1.4005. Optimism around a U.S.-Iran peace agreement is driving down oil prices and negatively impacting the commodity-linked Canadian dollar (CAD).
US Vice President JD Vance said on Tuesday that US President Donald Trump may decide to publish a tentative agreement ending the war with Iran before Friday, after the US president announced that the agreement had already been signed.
All eyes will be on the U.S. Federal Reserve’s (Fed) interest rate decision made delayed Wednesday by modern chairman Kevin Warsh. The US central bank is expected to leave its benchmark interest rate unchanged at its June meeting in the target range of 3.50-3.75%.
Technical analysis:
On the daily chart, USD/CAD is holding well above the 100-day Simple Moving Average (SMA) and the Middle Bollinger Band, maintaining a short-term bullish bias as price consolidates near recent highs. The upper Bollinger Band at around 1.4048 closes the immediate advantage, while the Relative Strength Index (RSI) at around 77 is in overbought territory, suggesting an extended but still forceful uptrend that could put the pair at risk of a corrective pause.
At the top, initial resistance is set at the upper Bollinger Band around 1.4048; closing the day above this barrier would open the way to the psychological level of 1.4100. On the other hand, the first support line appears at the June 11 low at 1.3931. The next level of competition is in the middle Bollinger Band near 1.3892, ahead of a deeper demand zone centered around the 100-day SMA at 1.3740 and the lower Bollinger Band near 1.3736, where a more significant pullback can be expected to attract buyers in line with the prevailing bullish structure.
(The technical analysis for this story was written with the facilitate 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 sheltered 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 exploit 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 up-to-date 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 store 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 faint, CAD will likely decline.
