The USD/CAD pair softened to near 1.4350 during the early European session on Tuesday amid a recovery in crude oil prices, which boosted the Canadian Dollar. However, the downside for the pair may be limited as markets anticipate the Federal Reserve to slow the pace of interest rate cuts in 2025. The immediate support level for USD/CAD is seen in the 1.4210-1.4200 zone, while the first upside barrier to watch is at 1.4450. The daily chart shows a positive outlook for the pair as it is above the 100-day Exponential Moving Average (EMA) and the Relative Strength Index (RSI) is in bullish territory, indicating further upside potential.
The key factors influencing the Canadian Dollar (CAD) include the level of interest rates set by the Bank of Canada (BoC), the price of Oil, the health of the Canadian economy, inflation, and the Trade Balance. Market sentiment, whether investors are taking on more risky assets or seeking safe-havens, also plays a role in driving the CAD. Additionally, the health of the US economy, as Canada’s largest trading partner, impacts the Canadian Dollar as well.
The Bank of Canada plays a crucial role in influencing the value of the Canadian Dollar by setting interest rates, which can impact credit conditions and inflation. Higher interest rates tend to be positive for the CAD, while quantitative easing has a negative effect. The price of Oil is another major factor affecting the CAD, as it is Canada’s largest export. Higher Oil prices generally lead to a stronger CAD, while lower prices have the opposite effect.
Inflation, traditionally seen as a negative factor for a currency, can actually have a positive impact on the Canadian Dollar in modern times. Higher inflation tends to lead to higher interest rates, attracting capital inflows and increasing demand for the CAD. Macroeconomic data releases, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys, also play a role in influencing the direction of the CAD. A strong economy is typically positive for the Canadian Dollar.
Overall, the USD/CAD pair remains in a constructive outlook, with the possibility of further upside moves above the 100-day EMA and the bullish RSI indicator. The pair faces immediate resistance at 1.4450 and could potentially rally to higher levels if buying momentum continues. On the downside, support is seen at 1.4210-1.4200, with further downside levels at 1.4042 and 1.3955. The outlook for the Canadian Dollar will continue to be influenced by factors such as interest rates, Oil prices, economic data releases, and market sentiment in the coming sessions.
