USD/CAD Forecast

The USD/CAD currency pair remains a key focus for traders and financial analysts globally. Recent trends in its exchange rate have highlighted the pair’s responsiveness to economic developments, geopolitical factors and changes in monetary policy, presenting a critical opportunity for forex traders.

In this article, Benzinga offers a comprehensive USD/CAD forecast by combining technical and fundamental analysis to provide a clearer picture of the currency pair’s potential future movements. Whether you're a seasoned market expert or a curious newcomer, this analysis will provide you with essential insights for trading this important currency pair.

Current Market Analysis

The USD/CAD pair is currently in a bullish phase after undergoing a minor sideways correction in recent trading sessions. Supporting this move, the US Dollar Index (DXY) has shown continued strength, driven by rising US Treasury yields and solid US labor market performance. In that regard, the 10-year Treasury yield has surpassed 4.70%, while December's Nonfarm Payrolls (NFP) data revealed an increase of 256K jobs, which exceeded the consensus of market forecasts. Furthermore, Canadian Prime Minister Justin Trudeau’s recent resignation on Jan. 6 has further weakened the Canadian dollar due to a rise in political uncertainty. These factors have been instrumental in re-initiating and sustaining the recent rally in USD/CAD.

Technical Analysis

From a technical analysis perspective, the USD/CAD pair is displaying strong bullish momentum within the Elliott Wave framework as of early 2025 and the pair currently appears to be near the start of an impulsive 5th Wave. The recent completion of a corrective 4th Wave, which was characterized by largely sideways movement, marks a transition to the final impulsive wave of this upward rally. The key invalidation level of this wave count is set at 1.4192, which traders should monitor closely to ensure the count’s accuracy. Short-term, the bullish phase is likely to continue, but upon completion of Wave 5, a more substantial correction to within the 1.4192 to 1.4467 boundaries of Wave 4 should follow.

Daily exchange rate candlestick chart of the USD/CAD currency pair showing the 50 and 100 period moving averages in blue and orange respectively and the 14 period RSI in the indicator box below the chart. Source: Metatrader5.

Key Support and Resistance Levels

• Resistance Levels: The USD/CAD pair has been trading in recent sessions within an upward channel and it has recently tested resistance at 1.4440. A break above the next resistance at the psychological 1.4500 level could drive further upward movement toward key long-term resistance seen at 1.4667, which was the major high in USD/CAD seen on March 15, 2020.
• Support Levels: Near-term support is currently established at 1.4280 and 1.4192. A break below the latter level may indicate a potential trend reversal and an entry into a more prolonged corrective phase that could result in further bearish momentum, with further support below that level seen at 1.3947 and 1.3899.

Technical Indicators

• Moving Averages: The pair is trading above the 30-day Simple Moving Average (SMA), reflecting a bullish near-term trend. The 50-day, 100-day and 200-day SMAs are also trending upward, reinforcing the pair's positive outlook.
• Trend Lines: Higher highs and higher lows have been forming, confirming the ongoing uptrend. An ascending channel visible on the daily chart further validates this pattern.
• RSI (Relative Strength Index): The RSI remains in bullish territory without showing signs of bearish divergence, suggesting the pair could continue to rise.
• MACD (Moving Average Convergence Divergence): The MACD has crossed above the zero line, signaling bullish momentum.

Potential Exchange Rate Directions

Based on current market conditions and technical indicators, we expect the USD/CAD pair to maintain its upward trajectory in the short term. However, a future loss of upside momentum, as indicated by bearish divergence on the RSI, could well result in a more sustained correction of either a sideways or declining nature. Traders should closely watch key support and resistance levels, especially since a sustained breach of the key 1.4280 and 1.4192 support levels could signify a potential reversal, suggesting that further downside risk exists.

Fundamental Analysis

Economic Overview of Canada

• GDP Growth: Canada's real GDP increased by 0.3% in the third quarter of 2024, following consecutive growth of 0.5% in both the first and second quarters.
• Employment: In December 2024, employment rose by 91,000 positions (+0.4%), bringing the unemployment rate down to 6.7%.
• Building Permits: The total value of building permits issued in November 2024 fell by 5.9%, amounting to $11.7 billion.
• Tourism Spending: Tourism expenditure in Canada decreased by 0.3% during the third quarter of 2024, with demand from international tourists dropping by 2.7%.
• Benchmark Interest Rates: The Bank of Canada’s benchmark interest rate is at 4.5%. 

Economic Overview of the United States

• GDP Growth: The U.S. economy continued its steady expansion, with a 0.5% GDP growth recorded in the third quarter of 2024.
• Employment: In December 2024, 150,000 jobs were added in the U.S., while the unemployment rate remained stable at 3.9%.
• Inflation: Inflation remained moderate, with the Consumer Price Index (CPI) rising by 0.2% in December 2024.
• Benchmark Interest Rates: The Federal Reserve’s benchmark interest rate is 5%, currently 0.5% above the BOC's. This differential supports a stronger USD.

Impact of Trade Relations and Political Events:

• U.S. and China Trade Tensions: Ongoing trade tensions between the U.S. and China may lead to periods of market volatility, affecting the USD/CAD pair.
• Canada’s Trade Negotiations: Canada’s trade relations, particularly with the U.S. and other major partners, can influence the CAD. Positive developments in trade agreements may strengthen CAD.
• Political Leadership Changes: The recent resignation of Canadian PM Trudeau on Jan. 6 and the inauguration of Donald Trump as U.S. President on Jan. 20 could result in substantial political uncertainty in both nations. 

Forecast for the USD/CAD Pair

Short-Term Forecast 

In the near term, the USD/CAD exchange rate is expected to break above the 1.4463/68 region to establish a new high within its current 5th wave move. Strong U.S. economic data, higher interest rates and bullish technical indicators support this upward movement fundamentally.

Medium to Long-Term Outlook 

After reaching a new high, the pair will likely enter a more extended corrective phase. This phase may see the USD/CAD pair falling or trading between the 1.42 and 1.46 levels over the medium to longer term. 

This corrective phase could be influenced by:

• Profit-taking by investors after the recent rally.
• Potential shifts in central bank policies if economic conditions change.
• Fluctuations in commodity prices, particularly oil, which can impact the Canadian dollar.
• Appointment of a new Canadian Prime Minister.

A Mixed Future for USD/CAD Looks Probable

After its recent bullish trajectory, the USD/CAD currency pair is expected to enter a mixed corrective phase soon after making yet another high mark influenced by key economic indicators, central bank policies, geopolitical uncertainties and overall market sentiment. Forex traders should remain vigilant, keeping a close eye on forthcoming economic data releases, the election of a new Canadian Prime Minister and central bank statements from both countries to identify potential shifts in the pair's trend.

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