USD/CAD Forecast: 1.3940 Support in Focus After BoC Rate Hike

On October 28, the Bank of Canada raised its overnight rate target by 25 basis points to 2.50%, marking its first increase since July 2023. With the Federal Reserve leaving its target range unchanged, the move narrowed the US dollar’s interest rate advantage, potentially reducing the appeal of carry trades funded in Canadian dollars. The Bank also indicated that further increases could be necessary, while stressing that uncertainty warranted a cautious approach. Its forecast for average inflation in 2027 rose to approximately 3.0%, one percentage point above the July projection and higher than its 2.0% target, the midpoint of a 1.0–3.0% control range. Elevated oil prices also provide a potentially supportive backdrop for the currency, given Canada’s position as a major crude exporter.

Meanwhile, the US dollar has shown mixed performance, with the US Dollar Index (USDX) near 101.60 in the original market snapshot. Recent US economic reports point to continued resilience: initial unemployment claims fell to 194.0K in the week ended October 24, compared with an upwardly revised 195.0K a week earlier. Continuing claims declined to 1.701 million in the week ended October 17, from a revised 1.722 million. Separately, the advance estimate showed that real US GDP expanded at an annualised rate of 3.4% in the third quarter, up from 2.2% in the second quarter. These figures may limit downward pressure on the dollar despite the narrower policy rate differential. The importance of relative monetary policy expectations was also discussed in our previous USD/CAD forecast.

Support and Resistance Levels

On the daily chart, the pair is trading below the previously identified ascending channel with boundaries at 1.4160–1.4250, having moved beneath its lower support line.

Technical indicators are positioned to strengthen their sell signal: the Alligator indicator’s moving averages are spreading apart, with the fast exponential moving averages (EMAs) significantly below the slow ones, while the Awesome Oscillator (AO) histogram is forming new corrective bars in negative territory.

Support levels: 1.3940, 1.3830.

Resistance levels: 1.4000, 1.4120.

USD/CAD Trading Scenarios and Exchange Rate Forecast

Short positions may be opened after the price declines and consolidates below 1.3940, with a target at 1.3830. Stop-loss: 1.4010. Estimated holding period: 7 days or more.

Long positions may be opened after the price rises and consolidates above 1.4000, with a target at 1.4120. Stop-loss: 1.3920.