The USD/CAD pair edged lower on Thursday, approaching the 1.4300 level, as the U.S. dollar faced renewed selling pressure. Investors are closely watching the 50-day Exponential Moving Average (EMA), a crucial technical support level that could determine the pair’s next move.
The Canadian dollar found support as oil prices rebounded, boosting demand for the commodity-linked currency. Crude oil’s recovery has provided a tailwind for the loonie, as higher energy prices improve Canada’s trade balance and economic outlook. Meanwhile, risk sentiment remains mixed, with global markets adjusting to shifting Federal Reserve expectations.
Despite recent softness, the U.S. dollar remains well-supported by underlying economic fundamentals. While traders have been reducing long-dollar positions, the greenback could find renewed demand if upcoming U.S. economic data signals resilience, particularly in inflation and labor market indicators. Any signs of prolonged Federal Reserve tightening could limit further downside for USD/CAD.
USD/CAD 1-D Chart as of March 06, 2025 (Source: TradingView)
At the same time, Bank of Canada (BoC) policy expectations remain a key driver for the pair. The BoC has maintained a cautious stance, balancing concerns over inflation and slowing growth. If policymakers signal any potential rate cuts ahead of the Fed, the Canadian dollar could come under renewed pressure, pushing USD/CAD higher again.
Technically, the 50-day EMA around 1.4300 is seen as an important support zone. A decisive break below this level could open the door for further downside, potentially testing 1.4250 or lower. Conversely, if buyers step in, the pair could see a bounce back toward 1.4400, particularly if the U.S. dollar regains strength.
For now, traders remain focused on upcoming economic releases and central bank commentary, with volatility likely to persist. A clearer direction for USD/CAD will depend on whether risk appetite strengthens or if macroeconomic trends favor continued U.S. dollar dominance.
