- USD/CAD outlook improves as it trades above 1.37, lifted by safe-haven flows.
- Fed’s cautious stance on inflation reinforces support for the dollar, but policy uncertainty persists.
- CAD gains limit upside as rising oil prices offer some counterbalance to USD strength.
The USD/CAD outlook remains mildly positive as the pair extended its upside for the third consecutive session on Thursday. The pair is hovering above 1.3700, at the time of writing. The recent bullish move is attributed to the Fed’s cautious tone supported by the safe-haven flows to the dollar amid geopolitical worries.
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Geopolitical risks are escalating as Iran-Israel conflict has already dampened the risk sentiment. US President’s aggressive stance against Iran has intensified situation as the fear of US military intervention have surged. These developments have given strength to the US dollar, as a safe-haven asset, pushing the US dollar index above 99.00 mark.
Moreover, the Federal Reserve’s recent policy meeting kept interest rates on hold at 4.25% – 4.50%, as expected. However, the Fed Chair came up with a cautious tone, acknowledging that the inflation is still above their targets. Hence, the rate cut primarily depends on how labor markets perform and if the declining trend in the inflation sustains, given the Trump tariffs could potentially reaccelerate the inflation. The Fed Chair also reiterated that the central bank is expected to deliver two rate cuts by end of 2025.
On the other side of equation, the Canadian dollar’s downside is limited amid stronger crude oil prices. The WTI prices tested $75.00 level near 5-month highs before slipping a little. Also, the fear of oil supply disruptions loom large as Iran could seize the Hormuz Strait.
USD/CAD Technical Outlook: Bullish Above 1.3700
The USD/CAD 4-hour chart shows a test of resistance at 1.3728 followed by a mild retreat. However, the price remains well above the 20-period SMA which is a positive sign for the pair. The RSI value is near the overbought area which indicates the price may consolidate around current levels and profit taking could be observed as well.
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If the pair manages to find acceptance above 1.3700 area, it may look to test 1.3800 ahead of 1.3850. On the flip side, if the selling pressure mounts and price breaks the 1.3700 barrier, it may drift back to 1.3650 ahead of 1.3600.
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