**Canadian Dollar Forecast: USD/CAD Makes a Comeback – But Will It Trend Higher or Lower?**
*Adapted and expanded from an article by Matt Weller, FOREX.com*
The Canadian dollar (CAD) has generally performed well throughout 2024. However, in early June, USD/CAD saw a notable bounce after spending several sessions on the defensive. This has sparked renewed debate among traders and investors about the underlying direction of the currency pair. While some argue that the Canadian dollar’s strength is built on solid fundamentals, others point to signs in the U.S. dollar’s favor that could shift momentum in the coming weeks or months.
In this expanded analysis, we explore the technical picture, macroeconomic factors, and global risk sentiment that could influence the direction of USD/CAD for the remainder of the year. We also assess how central bank policies in Canada and the United States may determine whether the pair resumes its downward trend or continues recovering.
## Recent Price Moves: USD/CAD Retraces from Yearly Lows
The USD/CAD pair has been on a roller coaster in recent weeks. After dropping to multi-month lows around 1.3600 in May, the pair bounced in early June, reclaiming some lost ground and hovering closer to 1.3700. While sellers had seemed firmly in control, the bounce has led to renewed scrutiny about whether this marks the start of a broader reversal.
### Technical Levels in Focus:
– **Support Zones**
– 1.3600 – a major support zone where the pair has bottomed multiple times in recent months
– 1.3520 – March’s low and a key psychological level
– **Resistance Zones**
– 1.3750 – a short-term resistance zone
– 1.3860 – high from early May
– 1.3900 – psychological resistance and intermediate peak in April
From a technical standpoint, USD/CAD remains in a long-term consolidation pattern after reaching a multi-year peak near 1.3900 in late April. Despite this tight trading range, some trend indicators have started flashing warning signals that a further rebound may be on the horizon.
The pair’s formation of a double bottom near the 1.3600 area coupled with a bullish divergence on the Relative Strength Index (RSI) supports the possibility of a rebound. A break above 1.3750 could open the door toward 1.3860 and even back toward the yearly highs.
## Canadian Dollar Fundamentals: Oil Prices and Rate Differentials
The Canadian dollar’s outlook is intricately tied to commodity prices, particularly crude oil, and the Bank of Canada’s (BoC) interest rate policy.
### Crude Oil: A Tailwind for the CAD
Canada is one of the largest exporters of crude oil. That makes the CAD highly sensitive to oil market dynamics. The West Texas Intermediate (WTI) crude oil benchmark has recently been trading between $75 and $80 per barrel. While this is far from the highs seen in 2022, the recovery from this year’s lows in the $70 area provided support to the Canadian economy and, by extension, its currency.
– Rising oil prices generally support CAD as they improve Canada’s terms of trade.
– If WTI moves above $80, the CAD could outperform.
– Conversely, if oil prices fall back below $75, it could lead to renewed weakness in the currency.
Analysts from CIBC Capital Markets and RBC Economics note that the correlation between the CAD and crude oil remains statistically significant, even though it has decreased over the past decade.
### Interest Rate Outlook: Bank of Canada Turns Dovish
The Bank of Canada was among the first G7 central banks to begin its monetary tightening cycle back in 2022. However, growing evidence of slowing economic growth and falling inflation prompted the BoC to pivot toward a more dovish stance in 2024. In its June policy
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