Canadian Dollar strengthens modestly against US Dollar ahead of Fed decision

The Canadian Dollar (CAD) modestly outperforms the US Dollar (USD) on Wednesday, drawing support from a rebound in Oil prices as the war in the Middle East intensifies again following a brief calm. At the time of writing, USD/CAD trades around 1.4093, trapped within a week-old range.

US President Donald Trump threatened heavy military action against Iran on Wednesday following attacks on US targets in Jordan.

West Texas Intermediate (WTI) trades around $83, up more than 5% on the day. Higher Oil prices typically support the Canadian Dollar due to Canada’s position as a major crude exporter.

However, elevated Oil prices provide only limited support to the Loonie as a broadly stronger US Dollar remains the main driver of the pair. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.45, rebounding from an intraday low of 101.24.

Diverging monetary policy expectations add another headwind for the Canadian currency, with traders seeing a greater chance of the Federal Reserve (Fed) raising interest rates than the Bank of Canada (BoC) in response to energy-driven inflation risks.

The Fed is widely expected to leave interest rates unchanged when it announces its policy decision at 18:00 GMT. Still, a rate hike cannot be ruled out, with the CME FedWatch Tool showing around a 31% probability of a 25-basis-point increase.

Technical analysis

On the daily chart, USD/CAD holds a modestly bullish near-term bias as it sits above the 50-day and 100-day Simple Moving Averages (SMAs) at roughly 1.4045 and 1.3893, respectively.

The pair is still capped by the 21-day SMA around 1.4123 overhead, suggesting a consolidative tone rather than a clean breakout, while the Relative Strength Index (RSI) hovers near a neutral 50 and the Moving Average Convergence Divergence (MACD) remains slightly negative but has been edging higher, hinting that downside momentum is fading.

On the topside, a sustained move above the 21-day SMA at 1.4123 would open the way for further gains, reinforcing the short-term bullish structure. On the downside, initial support is seen near the immediate price pivot around 1.4090/1.4094, followed by the 50-day SMA at 1.4045. A deeper pullback would look to the horizontal support zone near 1.4000, with the 100-day SMA at 1.3893 acting as a more distant structural floor.