USD/CAD Holds Firm as Fed Policy Expectations Support Dollar

Summary:

USD/CAD approaches 18-month highs near 1.4293 as geopolitical tensions and rising bond yields support the Dollar. Despite Brent exceeding $103, the Canadian Dollar struggles to recover amid persistent risk aversion.

Buy USDCAD

End Time

CLOSED

1.42815

ENTRY

1.44500

TGT

1.41500

1.40027 -0.00047 -0.03%

137

Points

Profit

1.41500

1.42952

CLOSING

1.42815

ENTRY

1.44500

TGT

The Canadian Dollar remains under pressure against its US counterpart on Thursday, with USD/CAD recovering from earlier losses as escalating geopolitical tensions and rising global bond yields strengthen demand for the Greenback. The pair trades around 1.4260, having rebounded from the 1.4200 region, bringing the 18-month high of 1.4293 back into focus.

Despite a sharp increase in crude Oil prices, the commodity-linked Canadian Dollar has struggled to attract meaningful buying interest. Brent Crude has advanced approximately 3.5%, climbing above $103 per barrel to its highest level in three weeks following renewed Houthi attacks on Saudi Arabian airports. The developments have heightened concerns about potential disruptions to Saudi Oil infrastructure and renewed inflationary pressures.

While higher Oil prices typically benefit the Canadian Dollar, investors are increasingly focused on the inflationary consequences of rising energy costs. Expectations that central banks may need to maintain restrictive monetary policies have intensified the global government bond selloff, reinforcing the US Dollar's safe-haven appeal.

Meanwhile, minutes from the Federal Reserve's September meeting highlighted policymakers' continued concerns about inflation. However, the release generated little market reaction, as weaker US employment and inflation figures have already strengthened expectations that the central bank will leave interest rates unchanged in October. The possibility of further tightening later in the year nevertheless continues to support the Dollar.

Canadian economic data has presented a mixed picture. The Ivey Purchasing Managers Index declined to 58.2 in September, down from 64.3 and below forecasts of 65.2, suggesting slower business activity. Conversely, Canada's international trade surplus widened sharply to CAD 4.2 billion in August, exceeding expectations of CAD 1.7 billion and easing some concerns about the impact of US trade tensions.

Although the stronger trade figures initially supported the Loonie, the recovery proved temporary as broader market sentiment continued to favor the Greenback.

The near-term outlook remains bullish for USD/CAD, with persistent geopolitical uncertainty and elevated Treasury yields keeping buyers interested. A sustained break above 1.4293 could open the door toward the psychological 1.4300 level and potentially extend the advance, while improving risk sentiment may provide some relief for the Canadian Dollar.

Technical Analysis

USD/CAD maintains a firmly bullish outlook on the hourly chart, with the pair consolidating around 1.4262 following an impressive recovery from the September lows near 1.3750. The sustained advance has established a clear sequence of higher highs and higher lows, while an ascending trendline continues to provide support, suggesting that buyers remain in control despite the recent slowdown in momentum.

The pair is currently testing a significant resistance zone between 1.4260 and 1.4280, where repeated attempts to extend higher have encountered selling pressure. However, the relatively shallow pullbacks and continued defense of the rising trendline indicate that the market may be building momentum for another bullish extension rather than preparing for a deeper reversal.

Recent price action also points toward a potential ascending triangle formation, with buyers establishing progressively higher lows beneath a relatively horizontal resistance barrier. This structure typically favors an upside continuation when accompanied by a decisive breakout above the upper boundary.

A sustained hourly close above 1.4280–1.4300 would strengthen the bullish outlook, potentially opening the way toward 1.4350, followed by the 1.4400 psychological threshold. Beyond these levels, the projected price structure suggests that the rally could extend toward 1.4450–1.4470, representing the next major upside objective.

Nevertheless, a temporary correction toward the ascending trendline around 1.4220–1.4240 remains possible before buyers attempt another breakout. As long as this support holds, the broader upward trajectory should remain intact. A sustained decline beneath 1.4200 would weaken the immediate bullish setup and expose the stronger support region around 1.4120–1.4140, where previous resistance has transitioned into support.

Overall, the combination of persistent buying pressure, rising trendline support and consolidation beneath resistance favors continued appreciation. The bullish scenario remains dominant while USD/CAD holds above 1.4200, with a confirmed breakout above 1.4300 potentially accelerating the advance toward 1.4450.

TRADE RECOMMENDATION

BUY USD/CAD

ENTRY PRICE: 1.4280

STOP LOSS: 1.4150

TAKE PROFIT: 1.4450

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Warren Takunda

Analysts

Warren Takunda, a seasoned finance leader specializing in the Middle East, is a trusted senior analyst with a proven track record. As head of the finance team, he excels in financial planning, analysis, and reporting. Warren's expertise in financial modeling and investment analysis delivers valuable insights to clients.

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P/L Ratio

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