The USD/CAD currency pair maintained its bullish momentum on Thursday, trading around the 1.4265 level during the Asian session, which is close to the highest point seen since April 2025, reached earlier in the week [1]. The Canadian dollar has been under pressure due to several factors, including ongoing US-Canada trade tensions, a sluggish domestic economy, and the Bank of Canada's (BoC) dovish policy stance. Market participants believe the BoC is less likely to raise interest rates compared to the US Federal Reserve, as Canada's weaker economic outlook is expected to keep inflationary pressures contained [1].
Crude oil prices, which significantly impact the commodity-linked Canadian dollar, are hovering near a one-month low. This is attributed to easing supply concerns, which have outweighed ongoing geopolitical uncertainties, further weakening the CAD and supporting the USD/CAD pair's upward movement [1]. The US Dollar Index (DXY) is trading near an 18-month high, driven by expectations that the US Federal Reserve will raise borrowing costs by the end of the year, a sentiment reinforced by Wednesday's hawkish FOMC Minutes [1]. Elevated US bond yields and the potential for escalating tensions in the Middle East have also contributed to the USD's safe-haven appeal.
Recent geopolitical developments include the Pentagon instructing US Central Command (CENTCOM) to finalize preparations for possible major combat operations in Iran, as US President Donald Trump considers a specific date for potential strikes. US and Israeli sources indicated that such actions could occur before the US midterm elections and possibly before the Israeli elections, which are scheduled a week earlier. Additionally, the Saudi-led coalition retaliated against the Houthis on Wednesday, targeting more than 80 military sites across several Yemeni governorates. These developments have further supported USD strength and, combined with the divergent policy outlooks between the BoC and the Fed, reinforce the constructive near-term outlook for the USD/CAD pair [1].
From a technical perspective, the USD/CAD pair remains in a bullish structure above the 1.4245-1.4250 congestion zone. The Relative Strength Index (14) is at 72.5, indicating overbought conditions and suggesting that while upside momentum is strong, it may be overextended. Any corrective pullback could find support near the 1.4200 level, with a break below potentially leading to further technical selling toward the 1.4150-1.4145 region [1].
CONCLUSION
The Canadian dollar is trading near multi-year lows against the US dollar, pressured by dovish BoC policy, weak domestic economic data, and falling oil prices, while the USD is buoyed by hawkish Fed expectations and geopolitical risks. Market sentiment remains negative for the CAD, with technical indicators suggesting the USD/CAD uptrend may be overextended but still supported by fundamentals. The outlook favors continued USD strength unless significant corrective action occurs.