USD/CAD Forecast: BoC caution limits Canadian dollar strength

The trading week continues to advance and, for now, the Canadian dollar has started to lose the strength it had shown in previous sessions. USD/CAD movements are barely registering a short-term variation near 0.05%, highlighting a loss of momentum.

For now, the selling pressure that USD/CAD had been showing has not managed to stabilize significantly after the Bank of Canada decision, which pointed to caution in monetary policy.

If the central bank fails to become a relevant catalyst for Canadian dollar demand, a phase of indecision could start to gain importance in USD/CAD movements over the next few sessions.

BoC day arrives

During the session, the Bank of Canada published its interest rate decision, keeping the rate unchanged at 2.25%, in line with expectations. The institution stated that current levels remain appropriate to support the economic recovery and bring inflation back toward the 2.00% target.

This stance reflects a cautious tone from the central bank. Although annual inflation in Canada has increased toward 3.2%, it is still not far enough from the target to justify a more aggressive stance. In addition, the bank continues to highlight that uncertainty remains elevated and that, with current rates, inflation should gradually ease.

Source: TradingEconomics

For now, this decision has not been enough to strengthen the Canadian dollar. The lack of signals around higher rates limits the appeal of CAD-denominated assets, especially compared to USD alternatives.

This dynamic is also reflected in Canada’s 10-year bonds, whose yield showed a decline close to -1.00% during the session. In addition, the spread against 10-year U.S. bonds remains relevant, as U.S. bonds still maintain a yield almost 1.00% higher.

Source: TradingEconomics

In this context, the Bank of Canada decision came without major surprises and failed to clearly improve the appeal of the Canadian market. For this reason, the recent recovery in the Canadian dollar appears to be explained more by U.S. dollar weakness than by the CAD’s own strength.

If new comments or data in the United States provide renewed support for the USD, USD/CAD could enter a phase of greater indecision over the next few trading sessions.

 

Technical forecast for USD/CAD

Source: StoneX, Tradingview

• The uptrend comes to an end: Since the first days of May, USD/CAD had managed to maintain a consistent bullish trend line, which remained the dominant technical structure over recent weeks. However, with the recent price decline and U.S. dollar weakness, this trend line has been crossed in recent sessions. Despite the recent selling pressure, current movements have started to show a new sense of neutrality. If this behavior continues and the selling bias fails to stabilize, room could open for a phase of indecision or even the formation of a sideways range over the next few trading sessions.
   
• RSI: The RSI line remains close to the 50 level. This indicates that, for now, there is still a balance between bullish and bearish impulses in the market over the last 14 sessions. This reading shows that a phase of indecision has not been fully eliminated from the USD/CAD daily chart.
   
• TRIX: A similar dynamic can be seen in the TRIX. Although the line remains above the 0 level, indicating that the dominant strength of long-term exponential moving averages remains in bullish territory, a relevant flattening of the curve has started to appear. This suggests that the buying impulse from previous weeks has entered an important stagnation zone and makes a possible phase of neutrality relevant again on the USD/CAD daily chart.
   

Key levels:

• 1.42089 – Relevant resistance: This 2026 high remains the most important buying barrier on the chart. Price movements toward this area could reactivate a buying bias and restore relevance to the bullish trend line that was important in previous weeks.
   
• 1.40813 – Near-term barrier: This nearby zone corresponds to the most relevant 23.6% Fibonacci level on the chart. Price movements that fail to move consistently away from this level could continue to highlight an important phase of neutrality and even open room for the formation of a short-term sideways range.
   
• 1.39905 – Crucial support: This relevant bearish barrier corresponds to the 38.2% Fibonacci retracement area and also aligns with the 50-period simple moving average. Price movements below this level could reaffirm a more consistent selling bias and open room for a possible short-term bearish trend line over the next few sessions.

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25