USD/CAD Price Forecast: Holds key 20-day EMA amid firm US Dollar
- USD/CAD holds onto gains near 1.3700 as the US Dollar trades firmly.
- Fed officials signal that there is no hurry for interest rate cuts.
- The BoC is expected to keep interest rates on hold at 2.25% through 2026.
The USD/CAD pair clings to Wednesday’s gains near 1.3700 during the European trading session on Thursday. The Loonie pair shows strength as the US Dollar (USD) trades broadly firm, following the release of the Federal Open Market Committee (FOMC) minutes of the January policy meeting on Wednesday.
During the press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, clings to gains near Wednesday’s high around 97.80.
Federal Reserve’s (Fed) January meeting minutes showed that officials are not in a rush to lower interest rates soon unless they see meaningful progress in price pressures returning towards the central bank’s 2% target.
Meanwhile, the Canadian Dollar (CAD) trades broadly weak even as the Bank of Canada (BoC) is expected to hold interest rates at their current levels of 2.25% through 2026, according to a Reuters poll. The BoC is unlikely to make any monetary policy adjustment this year as inflationary pressures have remained close to the central bank’s 2% target.
USD/CAD technical analysis
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USD/CAD exhibits strengthe at around 1.3700 as of writing. The 20-day Exponential Moving Average has eased from its prior decline and is beginning to flatten, signaling fading downside pressure. A daily close above the average would keep the recovery bias intact.
The 14-day Relative Strength Index (RSI) at 52 (neutral) confirms stabilizing momentum.
Price holds marginally above the 20-EMA, placing initial support at 1.3662. Looking down, the psychological level of 1.3500 will remain a key support area, while a sustained hold above the average could open room for an extension towards the February 6 high at 1.3740. The price could advance further towards the round-level figure of 1.3800 if it breaks and holds above 1.3740.
(The technical analysis of this story was written with the help of an AI tool.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.