USD/CAD edged higher toward 1.3875 in early European trading Monday as stronger expectations for a Federal Reserve rate increase supported the US Dollar. The pair remains caught between two opposing forces: higher US interest-rate expectations favor the Greenback, while elevated crude oil prices are providing support to the commodity-linked Canadian Dollar.
The latest market backdrop remains volatile. Reuters reported the Canadian Dollar weakened to around 1.3862 on Friday after US inflation data strengthened expectations for a Fed move. At the same time, Brent crude climbed above $107 a barrel as Middle East supply and shipping risks intensified.
Fed Bets Keep USD Supported
The US Dollar has gained ground as traders reassess the Federal Reserve’s next policy move. August US Consumer Price Index (CPI) data showed headline inflation increased 0.4% month over month and 3.4% from a year earlier. Core CPI, excluding food and energy, rose 0.3% monthly, above the 0.2% increase recorded in July.
Those figures have strengthened expectations for tighter US monetary policy. The CME FedWatch Tool was indicating roughly 86% odds of a Fed rate increase, while Reuters reported similar market pricing around 86%.
The dollar’s strength is also reflected in the US Dollar Index (DXY), which has benefited from rising Treasury yields and renewed expectations for higher US rates.
Oil Prices Cushion the Loonie
The Canadian Dollar has an important connection with crude because Canada is a major oil exporter. Higher oil prices can improve Canada’s export revenues and strengthen demand for the CAD, creating a counterweight to US Dollar gains.
That relationship is particularly important now. Brent crude rose above $107 Monday as attacks and shipping disruptions around the Middle East increased concerns about global energy supplies.
The Bank of Canada is also keeping a different policy stance from the Fed. The central bank held its overnight rate at 2.25% on September 2, while acknowledging continued uncertainty surrounding the Canadian economy. Scotiabank continues to see a bearish longer-term profile for USD/CAD, with its Q4 2026 target around 1.37.
USD/CAD Technical Levels
The daily technical structure remains mildly bearish. USD/CAD is trading below the 100-day moving average and the upper Bollinger Band, while the 14-day Relative Strength Index (RSI) near 49.9 indicates neutral momentum.
The immediate technical levels are:
- Resistance: 1.3920–1.3930
- Next upside target: 1.4000
- Major upside level: 1.4080
- Immediate support: 1.3840
- Stronger support: 1.3760
A sustained break above 1.3930 would weaken the bearish setup and expose the psychological 1.4000 level, followed by the August 4 high near 1.4080. Conversely, a decisive move below 1.3840 would strengthen the case for a decline toward the lower Bollinger Band around 1.3760.
Conclusion
USD/CAD remains positioned between competing monetary and commodity forces. Rising Fed hike expectations favor the US Dollar, while crude prices above $100 provide an important source of support for the Canadian Dollar. The technical structure remains bearish below 1.3930, but a break through that resistance could quickly change the near-term outlook. For now, 1.3840 and 1.3930 define the key range, with the next major move likely depending on US rate expectations and the direction of oil prices.
Sources & Methodology
Primary-source standard: Market-moving facts should link to original data releases, regulator notices, company filings or official project announcements whenever available. Secondary reporting is used for additional context, not as a substitute for original evidence.
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