USD/CAD Tests Multi-Month Highs Near 1.3880 as Strong Dollar Weighs on Loonie

The US Dollar to Canadian Dollar (USD/CAD) pair is trading near 1.3880 in Wednesday’s session, retesting levels last seen on August 1. The move reflects broad USD strength, fueled by risk-off sentiment, rising US Treasury yields, and fading optimism around a potential Ukraine peace deal.

Fundamental Overview: Hawkish Fed vs Weak Canadian Data

Global risk aversion deepened after Wall Street’s sell-off, driving demand for the greenback. At the same time, higher US Treasury yields reinforced the USD’s yield advantage, boosting the pair further.

Investor focus now turns to Fed Chair Jerome Powell’s Jackson Hole speech later this week. With inflation proving sticky and the US labor market showing signs of cooling, Powell may lean hawkish, tempering expectations of aggressive rate cuts in the coming months.

On the Canadian side, macroeconomic data continues to weigh on the Loonie. July CPI data confirmed a further slowdown in inflation:

• Headline CPI: 1.7% (vs. 2.0% prior)
• BoC CPI: 2.6% (vs. 2.9% prior)

Combined with weak crude oil prices—WTI hovering just above $62 per barrel—the Canadian Dollar faces sustained downside pressure. Given Canada’s heavy reliance on energy exports, oil’s weakness remains a key headwind.

USD/CAD Technical Analysis (H4 Chart)

• Trend: The pair trades within a strong up channel.
• Moving Averages: USD/CAD is positioned above all key SMAs, confirming bullish momentum.
• Momentum Indicators:
  • RSI remains in the bullish zone, suggesting further upside.
  • Stochastic oscillator points to a positive trend with momentum intact.
• Key Levels:
  • Immediate Resistance: 1.3879
  • Immediate Support: 1.3798

How to Trade USD/CAD

On the higher timeframes, USD/CAD staged a strong reversal after a previous decline, breaking above a critical resistance zone that has since turned into support. The pair is currently undergoing a minor pullback, but as long as it remains above the retested zone, the bullish outlook stays intact.

• Trade Suggestion:
  • Entry (Limit Buy): 1.3832
  • Take Profit: 1.3907
  • Stop Loss: 1.3795

A sustained break above 1.3880 would open the door for further gains toward 1.3950–1.4000, while a drop below 1.3798 could trigger corrective downside.

Key Takeaways for Professional Traders

• USD/CAD forecast: Testing multi-month highs near 1.3880 on broad USD strength.
• Fed outlook: Powell’s Jackson Hole speech could reinforce a hawkish bias.
• Canadian Dollar under pressure from soft CPI and weak oil prices.
• Technical bias remains bullish, with further upside likely above 1.3830 support.
• Best near-term strategy favors buying dips as long as momentum holds.