On Wednesday, USD/CAD reached its highest point since April 2025 as the Canadian dollar (CAD) struggled due to a stronger US dollar and decreasing oil prices.
Currently, the pair is trading at approximately 1.4235. The US Dollar Index (DXY), which measures the US dollar against a basket of six major currencies, stands around 101.64, a level last observed in May 2025.
The dollar is bolstered by increasing expectations that the Federal Reserve may raise interest rates later this year. This follows Chairman Kevin Warsh’s hawkish comments during last week’s monetary policy meeting. He reiterated the Fed’s aim to restore price stability and bring inflation back to the 2% target.
This hawkish outlook from the Fed contrasts with the more cautious approach of the Bank of Canada (BoC), indicating that USD/CAD might continue to find support in the near term.
Meanwhile, oil prices have nearly lost all the gains made during the U.S.-Iranian conflict, as the Strait of Hormuz gradually reopens following last week’s 60-day agreement. West Texas Intermediate (WTI) is currently priced around $70.35, its lowest since early March.
As Canada is a key oil exporter, the fall in oil prices has exerted additional pressure on the commodity-linked loonie.
Technical analysis:
Looking at the daily chart, USD/CAD continues its strong upward trend, trading significantly above its 50-day, 100-day, and 200-day simple moving averages (SMAs), which range between 1.3769 and 1.3830.
The Moving Average Convergence Divergence (MACD) histogram is positive and increasing, indicating that upward momentum remains in play. However, the Relative Strength Index (RSI) at 88 suggests extreme overbought conditions, implying that a corrective pullback could happen, even if the overall trend remains positive.
On the downside, initial support appears at 1.4110, followed by a horizontal level at 1.4000, and a long-term SMA band around 1.3830-1.3770.
On the upside, immediate resistance is at 1.4300, and a clear break above this level would pave the way for further gains. Conversely, failure to surpass this barrier could raise the risk of consolidation or deeper retracement towards the aforementioned support levels.
(The technical analysis in this story was created with the help of AI tools.)
Fed Frequently Asked Questions
The Federal Reserve Board (Fed) is responsible for shaping U.S. monetary policy, focusing on price stability and full employment. The primary method to accomplish these aims is by adjusting interest rates. If inflation exceeds the Fed’s 2% target, they will raise rates, making borrowing more expensive and strengthening the US dollar (USD). Conversely, if inflation falls below 2% or unemployment rises, the Fed might lower rates to encourage borrowing, which could weaken the dollar.
The Fed conducts eight policy meetings each year where the Federal Open Market Committee (FOMC) evaluates economic conditions and determines monetary policy. Twelve Fed officials participate in these meetings, including seven Board members, the New York Fed president, and four rotating regional reserve bank presidents, each serving one-year terms.
In certain extreme scenarios, the Federal Reserve may use a strategy called quantitative easing (QE). This involves significantly increasing the flow of credit in a struggling financial system. It is typically employed during crises or when inflation is very low, similar to the approach taken during the 2008 Financial Crisis. QE involves the Fed creating more dollars to purchase high-quality bonds from financial institutions, which generally weakens the US dollar.
Quantitative tightening (QT) is the opposite of QE. In this process, the Federal Reserve stops buying bonds and refrains from reinvesting the principal of maturing bonds into new bonds. This process usually has a positive impact on the value of the US dollar.
