The USD/CAD exchange rate reached a peak of about 1.4225 during European trading on Wednesday, marking its highest point in a year. The Canadian dollar is holding strong as the US dollar continues to gain ground, driven by expectations that the Federal Reserve’s next policy decision will involve an interest rate increase.
As of now, the US dollar index (DXY), which gauges the dollar’s strength against six major currencies, is up by 0.1%, sitting at around 101.50—its highest level in a year.
According to the CME FedWatch Tool, there’s roughly an 86% likelihood that the Fed will raise interest rates this year, while the odds of seeing at least two rate hikes is about 48.3%. Last week, during the Fed’s monetary policy meeting, it was disclosed that nine out of 19 policymakers were in favor of a potential rate hike before year’s end.
Investors are also keenly awaiting the release of the May Personal Consumption Expenditure Price Index (PCE) data, which is scheduled for Thursday. This data is expected to provide new insights regarding the Fed’s monetary policy trajectory.
USD/CAD Technical Analysis
Currently, USD/CAD is trading around 1.4224. The pair is performing above its 10-week exponential moving average (EMA) of 1.3943, indicating a positive bullish sentiment and suggesting that the overall upward trend remains in play.
The Relative Strength Index (RSI) is hovering around 67, which points to overbought territory. This indicates strong upward momentum, although corrections could occur if traders start taking profits.
On the downside, significant support is noted at 1.4140, the high from November 2025, along with the 10-week EMA at 1.3943. On the upside, there could be a continued rally towards the April 7, 2025 high of 1.4296, and potentially, the April 2025 high of 1.4415.
US Dollar Frequently Asked Questions
The United States dollar (USD) serves as the official currency of the U.S. and is also used alongside local currencies in various countries. As the most often traded currency globally, it accounts for over 88% of the international currency trading volume, averaging about $6.6 trillion daily, based on 2022 data. It replaced the British pound as the world’s reserve currency after World War II. Historically, it was backed by gold until the gold standard was abolished in 1971.
The key factor impacting the value of the USD is the monetary policy determined by the Federal Reserve System (Fed). The Fed’s dual objectives include maintaining price stability and promoting full employment, with interest rate adjustments being its primary tool. If inflation surpasses the Fed’s 2% target, rates are likely to be raised to support USD’s value. Conversely, if inflation dips below the target or unemployment rises, rate cuts may follow, potentially weakening the dollar.
In exceptional situations, the Fed may resort to printing more money and employing quantitative easing (QE). QE significantly increases credit flow in a struggling financial system, serving as a last-ditch effort when standard policies fail. It was notably used during the 2008 financial crisis, where the Fed purchased U.S. Treasuries from financial institutions, generally leading to a weaker USD.
Quantitative tightening (QT) represents the opposite approach, wherein the Fed ceases bond purchases from financial institutions and refrains from reinvesting in maturing bonds. This process typically supports the USD.
