USD/CAD. Analysis and Forecast

[Ben Graham]

The Canadian dollar has received support from rising oil prices, which is quite expected given Canada's status as one of the key suppliers of raw materials to the United States. U.S. crude oil (WTI – West Texas Intermediate) prices are climbing after a recent sharp decline, supported by ongoing geopolitical tensions in the Middle East and concerns over potential supply disruptions. However, this factor is likely to provide only temporary support for the Canadian dollar, as the commodity-driven momentum is gradually weakening.

From a monetary policy perspective, the U.S. dollar continues to face pressure but is gradually stabilizing. Markets continue to price in a high risk of further easing of the Federal Reserve's monetary policy in 2026 following the December rate cut of 25 basis points, which set a new target range of 3.50%–3.75%. Over the course of 2025, the Fed cut rates by a total of 75 basis points amid a slowdown in the labor market and inflation that remains above the target level.

The main focus now shifts to the publication of the minutes of the Federal Open Market Committee (FOMC) meeting, scheduled for Tuesday. The document may shed light on the nature of internal discussions within the Federal Reserve and provide clues about the future direction of policy in 2026. According to the CME FedWatch tool, the probability of keeping rates unchanged in January remains high, while expectations for a rapid new rate cut have weakened.

In Canada, the monetary situation appears more stable. The Bank of Canada is maintaining a wait-and-see approach, as inflation is only slightly above the 2% target. The regulator's latest minutes confirm that the current level of interest rates is considered appropriate, while still allowing for flexibility should economic conditions change. The divergence in approaches between the Fed and the Bank of Canada is keeping USD/CAD in a state of moderate consolidation.

From a technical standpoint, oscillators on the daily chart are in oversold territory, confirming the consolidation phase. The first obstacle to further growth is the round level of 1.3700. The next resistance lies at 1.3750, near the 9-day EMA. Support is located at 1.4650.

According to current data, the Canadian dollar is showing its strongest performance against the New Zealand dollar, while its dynamics against other major currencies remain mixed.

The material has been provided by InstaForex Company - www.instaforex.com