USD/CAD Forecast: Rate Differentials Drive Bullish Momentum

• The US dollar surged against the Canadian dollar on Monday as rate differentials and central bank outlooks supported further upside.
• With resistance near 1.41 and support around 1.40, bullish momentum remains intact despite expected volatility.

The US dollar rallied significantly against the Canadian dollar during early trading on Monday, as we continue to see the interest rate differential and the central bank trajectory truly drive this pair higher. If the market can break above the 1.41 level, it opens up the possibility of the US dollar going much higher, perhaps as high as the 1.4250 level. Short-term pullbacks open up the possibility of buying the dip as it shows value, especially if we were to drop down to the 1.40 level, or even the 50-day EMA, which is right around the 1.3925 level.

Top Regulated Brokers

1

Get Started 74% of retail CFD accounts lose money Read Review

US Dollar Continues to Pay Swap

The US dollar continues to pay a positive swap against the Canadian dollar, despite the fact that the Federal Reserve just cut rates. This was because, earlier in the same day, so did the Bank of Canada. So really, at that point, we haven’t moved the interest rate differential at all. Furthermore, there is suspicion that maybe the Federal Reserve won’t be able to cut interest rates in December, and that has a major influence on where we could go next.

With this, I believe we have a scenario where the bullish candle on Monday makes a lot of sense because it’s simply people willing to get involved and take advantage of the overall momentum again. If we were to turn around and break down, it’s really not until we move below the hammer from the Wednesday session—essentially the same level as the 200-day EMA—that I would consider shorting this market. Even then, I might just step aside and wait rather than go short. Overall, this is a market that I think, given enough time, does go higher, though it’s likely to remain very noisy and choppy—but that’s nothing new for this pair.

Ready trade our USD/CAD Forex forecast? Here’s some of the best regulated forex brokers in Canada to check out.