Summary:
USD/CAD rises near 20-day EMA as safe-haven demand boosts the dollar, with geopolitical tensions and trade talks shaping market sentiment.
The USD/CAD currency pair is regaining upward momentum, lifted by a stronger US dollar amid heightened geopolitical tensions and cautious optimism over North American trade talks. As the pair trades near the 20-day Exponential Moving Average, market participants are closely watching whether this rebound signals a short-term shift or simply a pause in broader bearish pressure. With both global and domestic developments influencing sentiment, USD/CAD has re-emerged as a focal point in the forex market.
The USD/CAD currency pair continued its upward trajectory on Thursday, marking a third consecutive day of gains. The pair slightly surpassed the 1.3700 level in Asian trading hours, climbing toward the 20-day Exponential Moving Average (EMA), which currently hovers near 1.3715. This rebound comes after the pair hit an eight-month low near 1.3540 earlier in the week, sparking renewed buying interest.
Growing tensions in the Middle East have heightened demand for safe-haven assets, particularly the US dollar. According to Bloomberg, speculation around a potential US strike on Iran has further inflamed the region's instability, pushing investors toward the greenback. The US Dollar Index (DXY), which tracks the dollar against a basket of major currencies, rose to around 99.10—reflecting broad-based strength.
This flight to safety has benefited USD/CAD, with risk aversion accelerating capital flows into dollar-denominated assets. As geopolitical concerns remain elevated, the dollar could maintain support in the near term.
On the monetary policy front, the US Federal Reserve left interest rates unchanged at 4.25%–4.50% for the fourth consecutive meeting. However, policymakers issued a cautionary tone, warning of growing stagflation risks—particularly due to protectionist trade policies implemented by President Donald Trump.
The Fed's decision to stay on hold was widely expected, but its concern over persistent inflation and slowing growth may influence future expectations. While the central bank remains data-dependent, continued geopolitical uncertainty could justify keeping rates higher for longer.
In contrast, developments in Canada were slightly more constructive. Bank of Canada Governor Tiff Macklem expressed optimism over ongoing trade talks with the United States. At the recent G7 summit, both nations agreed to pursue a bilateral agreement within 30 days, a move that could ease lingering tensions.
Macklem acknowledged that current tariffs continue to pose inflation risks for the Canadian economy. However, he indicated hope that the conclusion of a formal agreement could pave the way for removing additional duties on Canadian imports. Any progress on this front may provide tailwinds for the Canadian dollar in the medium term.
From a technical standpoint, USD/CAD's rise toward the 20-day EMA is a key short-term development. The 14-day Relative Strength Index (RSI) has also climbed back above 40.00. signalling a temporary pause in bearish momentum. Still, bearish bias remains intact unless the pair clears key resistance levels.
If the pair breaks above the 1.3820 high from 29 May, it could open the door toward 1.3920 and potentially 1.4000—marking highs from earlier in May. On the downside, a move below the recent low of 1.3540 would likely expose the psychological level at 1.3500. followed by support near 1.3420 from 25 September.
The recent rise in USD/CAD reflects a mix of geopolitical fears, resilient US dollar demand, and cautious optimism on the trade front. While the pair trades near its 20-day EMA, market sentiment remains fragile, driven largely by developments beyond economic data. For now, traders are watching whether the pair can sustain momentum above 1.3700 or if renewed downside pressure will retest recent lows. Either way, USD/CAD remains at the centre of attention as volatility persists in global markets.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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