USD/CAD Price Forecast: Holds ground above 1.3650 as US Dollar rises

The USD/CAD pair extends its three-day recovery move to near 1.3700 during the European trading session on Wednesday. The Loonie pair gains as the US Dollar rises despite most Federal Reserve (Fed) officials stressing the need to loosen monetary conditions further to support deteriorating job market conditions.

Most participants noted moving toward a more neutral policy stance would help forestall possible job market deterioration,” FOMC minutes showed.

In 2025, the Fed has already reduced interest rates by 75 basis points (bps) to 3.50%-3.75% and guided that there will be only one interest rate cut in 2026. On the contrary, the CME FedWatch tool shows that there will be at least 50 basis points (bps) reduction in interest rates by the end of 2026.

Meanwhile, the Canadian Dollar (CAD) trades marginally lower ahead of the New Year eve, with investors remaining uncertain about when the Bank of Canada (BoC) will make any monetary policy adjustment in early 2026.

USD/CAD technical analysis

In the daily chart, USD/CAD trades at 1.3707. The 20-day EMA slopes lower at 1.3772 and caps rebounds, keeping the pair under pressure. Price holds below the average, preserving a bearish tone. RSI at 33.85 remains below the midline, signaling weak momentum after a rebound from oversold.

Downside momentum has moderated as the oscillator lifts, but buyers lack control while the RSI stays sub-50. As long as the pair trades beneath the 20-day EMA, rallies could fade, and the risk would turn to a fresh leg lower. A daily close above the average could temper selling pressure and allow a corrective bounce.

(The technical analysis of this story was written with the help of an AI tool)