10.01.202513:00 Forex Analysis & Reviews: USD/CAD: Analysis and Forecast

Today, the USD/CAD pair continues its upward trend for the fourth consecutive day, driven by sustained demand for the US dollar.

The US Dollar Index, which tracks the dollar against a basket of currencies, is approaching a two-year high, supported by hawkish signals from the Federal Reserve. Minutes from the December FOMC meeting indicate a slowdown in the pace of rate cuts, which further supports the dollar.

Additionally, speculation about expansionary policies under US President-elect Donald Trump, potentially driving inflation higher, keeps US Treasury yields elevated, acting as a tailwind for the dollar.

Geopolitical instability caused by the conflict between Russia and Ukraine, as well as changing dynamics in the Middle East and fears of a trade war, continues to bolster demand for safe-haven assets like the US dollar. At the same time, Trump's tariff threats add uncertainty to Canada's economic outlook, negatively impacting the Canadian dollar.

Markets anticipate that the Bank of Canada will lower interest rates by 25 basis points in January, further undermining the Canadian currency. Despite rising oil prices, which typically support the Canadian dollar, traders remain cautious, maintaining an upward bias in USD/CAD.

Traders and investors are advised to avoid aggressive directional bets ahead of the release of key monthly employment data for the US and Canada, set to be published later today during the early North American session.

Preliminary expectations suggest that the US economy added 160,000 jobs in December, with the unemployment rate holding steady at 4.2%. In Canada, employment is forecasted to increase by 25,000, with the unemployment rate likely rising to 6.9%. Deviations from these projections could trigger market volatility, creating short-term trading opportunities in the USD/CAD pair.

From a technical point of view, the next move higher will encounter resistance near the supply zone at 1.4422–1.4430, beyond which USD/CAD could attempt to retest the multi-year high of 1.4465, reached in December. Given that daily chart oscillators remain comfortably in positive territory and far from overbought levels, further buying may pave the way for a move toward the psychological level of 1.4500.

From a technical point of view, a corrective pullback may attract buyers around the 1.4350–1.4345 level, limiting declines near the round figure of 1.4300, followed by the weekly low at 1.4275. Further selling pressure could tilt the bias in favor of bears, exposing USD/CAD to an accelerated decline toward the key support level at 1.4200.