During Thursday's Asian session, the USD/CAD pair remained firm, trading around 1.4265, not far from the highest level since April 2025 reached earlier this week.
Over the past month, USD/CAD has continued to climb, and the price remains in a clear uptrend. Although short-term technical indicators have already flashed overbought signals, Canada's economic fundamentals, the divergence in monetary policy between the two countries, and broad US dollar strength continue to underpin the pair, keeping buying interest strong on pullbacks.
The Canadian dollar has recently underperformed the US dollar markedly, with weak domestic economic growth in Canada and the Bank of Canada's relatively dovish policy stance serving as the main sources of pressure.
The market widely believes that compared with the Federal Reserve, the Bank of Canada has relatively limited need to continue raising rates. Canada's sluggish economic activity means demand-side inflationary pressure may be contained, giving the Bank of Canada more room to maintain accommodative or cautious policy.
The divergence in US-Canada monetary policy expectations further amplifies exchange rate pressure. If the Fed keeps rates high or even considers another hike due to inflation risks, while the Bank of Canada lacks the impetus to tighten further, the interest rate differential between the two countries may continue to tilt in favor of the US dollar. For the foreign exchange market, interest rate differentials directly affect capital allocation, making the divergence in policy paths one of the key drivers behind USD/CAD's sustained rally over the past month.
The crude oil market is also working against the Canadian dollar. Recently, international oil prices have hovered near a one-month low, with supply concerns easing somewhat and offsetting part of the premium from geopolitical risks. As a major energy exporter, the Canadian dollar typically draws some support from rising oil prices; conversely, if oil prices continue to fall, Canada's trade and energy export revenue expectations could be affected, further weakening the loonie.
Currently, oil prices are being influenced by both expectations of supply recovery and risks from the Middle East situation. If supply concerns in major producing regions ease further, the crude oil risk premium could continue to decline, further eroding external support for the commodity-linked Canadian dollar. Conversely, if Middle East conflicts escalate and cause actual supply disruptions, a sharp oil price rally could revive the Canadian dollar's performance, making crude oil trends an important variable for judging the future direction of USD/CAD.
The US dollar's own strength has further widened the pair's upside space. The US Dollar Index is currently near an 18-month high, and market expectations for another Fed rate hike before year-end were reinforced after the latest meeting minutes were released. The minutes of the Fed's September meeting showed that most policymakers considered further rate increases before year-end potentially appropriate, implying US interest rates may stay elevated for longer. Meanwhile, US Treasury yields are at high levels, boosting the yield appeal of US dollar assets. Against a backdrop of relatively dovish policy in other major economies, the US's higher interest rates help sustain international demand for US dollar assets. If US economic data continues to show resilience, or if energy price increases reignite US inflation expectations, the possibility of further Fed tightening could heat up again, providing more support for the dollar.
Geopolitical risks have also become an important external factor for USD/CAD bulls. The Middle East situation could still escalate further, and market concerns about energy transportation, supply chains, and the expansion of regional conflicts have not faded. When risk appetite declines, the US dollar typically benefits from safe-haven inflows. In addition, the Saudi-led coalition previously said it launched counterattacks against the Houthis and struck multiple military targets. Such military actions could heighten market worries about a broader regional conflict and increase risks to energy supply and transportation. For the US dollar, rising geopolitical risks often strengthen safe-haven demand; for the Canadian dollar, unless the risk ultimately translates into sustained oil price gains, market risk aversion alone may not provide sufficient support.
Therefore, the core logic for USD/CAD currently remains "strong dollar + US-Canada policy divergence + weak Canadian economy + pressured oil prices." As long as these factors do not reverse significantly, the pair's overall trend remains biased toward the upside. However, USD/CAD has risen for a month straight, and short-term gains have accumulated considerably; if the US Dollar Index pulls back or oil prices suddenly rebound, the pair could see a phase of profit-taking. From the daily chart structure, USD/CAD currently maintains a clear bullish trend, with the price running above the crowded 1.4245 to 1.4250 zone, which has become important short-term support. The Relative Strength Index (RSI) is around 72.5, already in overbought territory, indicating strong recent upward momentum but also meaning bulls carry some risk of overextension. As long as the price can hold steadily above 1.4245 to 1.4250, the daily structure remains bullish, with opportunities to continue challenging this week's high and the阶段性 high since April 2025.
From the 4-hour structure, the pair remains in an uptrend, with the 1.4250 area being an important battleground for short-term bulls and bears. If the price pulls back and finds support in this area, then breaks above recent highs again, the uptrend could extend further. If the 1.4245 to 1.4250 zone is effectively broken below, watch for increased technical selling, with the next support at the 1.4200 round-number level. If 1.4200 also fails, the pullback space could widen further to the 1.4150 to 1.4145 area. However, as long as major support has not been effectively breached, the current technical structure should still be viewed as a pullback seeking support rather than a direct trend reversal.
In summary, USD/CAD remains in a strong uptrend over the past month. Canada's weak economy, the Bank of Canada's dovish policy stance, and weakening oil prices have combined to weigh on the Canadian dollar, while Fed rate hike expectations for the year, elevated US Treasury yields, and safe-haven demand continue to support the US dollar, pushing the pair close to its highest level since April 2025. Although technicals show USD/CAD has entered overbought territory, overbought conditions do not mean an immediate trend reversal. The 1.4245 to 1.4250 zone is currently the most important short-term support area; as long as the pair holds above it, bulls remain in control. If it effectively breaks above recent highs, the uptrend may extend further; if it falls below this zone and loses 1.4200, short-term adjustment pressure will increase markedly. Going forward, the market should focus on Fed policy expectations, US Treasury yields, Canadian economic data, Bank of Canada policy signals, and international oil price changes. The US-Canada interest rate differential and oil prices remain the two core variables determining the medium-term direction of USD/CAD.