Canadian Dollar coil ahead of central bank double-header

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Maintains position around 1.4400 near a crucial support zone – Crypto News

Published

2 years ago

January 29, 2025

Dripp

USD/CAD tests the immediate barrier at the psychological level of 1.4400.
The bullish bias persists, as the 14-day RSI remains above the 50 mark.
The immediate support appears at the lower boundary of the ascending channel, near the 1.4350 mark.

The USD/CAD pair maintains its position after two consecutive days of gains, trading close to 1.4400 during the Asian session on Wednesday. On the daily chart, the pair is within an ascending channel, indicating a prevailing bullish trend.

The 14-day Relative Strength Index (RSI) hovers just above the 50 mark, signaling sustained positive momentum. A consistent RSI above 50 would further endorse the bullish sentiment.

Additionally, the USD/CAD pair trades slightly above the nine- and 14-day Exponential Moving Averages (EMAs), reinforcing the bullish trend and suggesting strong short-term price action. This alignment reflects solid buying interest and hints at the potential for further upside movement.

On the upside, the USD/CAD pair is testing the psychological level of 1.4400 and is positioned to challenge 1.4518—its highest level since March 2020, achieved on January 21. Further resistance is expected near the upper boundary of the ascending channel, around 1.4840.

Immediate support lies at the nine-day EMA at 1.4380, closely followed by the 14-day EMA at 1.4377. This level coincides with the lower boundary of the ascending channel, near the 1.4350 mark, providing a robust support zone.

USD/CAD: Daily Chart

Canadian Dollar FAQs

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking 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 gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.