Canadian Dollar Outlook: USD/CAD pauses as markets await Middle East updates

After a six-session bearish streak, USD/CAD has begun to stabilize around the 1.36500 level, posting a modest gain of approximately 0.1% in the short term.

At this stage, a phase of pause or indecision appears to be forming, as markets remain focused on new developments related to the Middle East conflict. This environment has led to a temporary stabilization in the U.S. dollar, preventing the Canadian dollar from continuing its consistent gains.

As long as this cautious sentiment persists, USD/CAD is likely to remain in a short-term indecision phase, which could continue to shape price action in the coming sessions.

The U.S. dollar stabilizes in the short term

On April 22, the current ceasefire deadline between the United States and Iran is set to expire. So far, the United States has indicated that it does not intend to extend the agreement, while maintaining the possibility of military action in the short term.

Meanwhile, Iran has stated that it will respond decisively to any attack and has indicated it has “new cards on the battlefield” should tensions escalate.

Although these statements do not completely rule out further negotiations, they have introduced a more cautious tone in financial markets, which has contributed to a pause in the recent weakness of the U.S. dollar.

This behavior is reflected in the DXY index, which has shown a slight rebound above the 98 level, suggesting stabilization after the previous decline. This indicates that selling pressure on the dollar has begun to moderate in the short term.

Source: TradingEconomics

This development is particularly relevant, as the recent strength of the Canadian dollar had been largely driven by the weakness of the U.S. dollar. In this context, the stabilization of the dollar may limit the CAD’s ability to continue gaining ground in the short term.

As long as no clear progress in negotiations is confirmed, it is likely that indecision will continue to dominate USD/CAD price action.

Inflation data also becomes relevant

During the previous session, Canada’s inflation data was released, with CPI coming in at 2.4%, slightly below the expected 2.5%.

However, the key takeaway is that this represents an increase from the 1.8% recorded in February, highlighting a short-term acceleration in inflation, moving further away from the Bank of Canada’s 2.00% target.

Source: TradingEconomics

This development is important, as the Bank of Canada had already begun shifting away from rate cuts, and these figures may reinforce a stance of rate stability or even a more cautious monetary approach.

This has helped the Canadian dollar maintain some support in the short term and could become even more relevant if the central bank adopts a more restrictive tone in future decisions.

In this context, inflation data could act as a key catalyst supporting continued selling pressure in USD/CAD over the coming weeks.

 

USD/CAD Technical Outlook

Source: StoneX, Tradingview

• The downtrend remains dominant: For several months, USD/CAD has maintained a long-term downward trendline, which continues to act as the dominant technical structure in the chart. Despite the recent pause in price action, the selling pressure observed in recent sessions has reinforced the relevance of this formation. If no strong recovery moves emerge, this structure is likely to continue dominating price action in the coming sessions.
   
• RSI: The RSI remains below the 50 level, indicating that selling momentum continues to dominate over the last 14 sessions. If this dynamic persists, downside pressure is likely to remain relevant in the short term.
   
• MACD: The MACD continues to show a histogram below the 0 line, confirming that short-term moving average momentum remains in bearish territory. This reinforces the importance of the current bearish bias in USD/CAD.
   

Key levels:

• 1.38135 – Key resistance: A level aligned with recent highs and the 200-period moving average. A move toward this zone could reactivate stronger buying pressure and potentially challenge the current downtrend.
   
• 1.37227 – Near-term barrier: A recent retracement zone acting as immediate resistance. This level could become relevant in the case of short-term corrective moves.
   
• 1.35418 – Key support: A level aligned with 2026 lows and the most important downside barrier. A move toward this zone could reaffirm the dominant bearish bias and support continuation of the downtrend in the coming weeks.
   

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25