USD/CAD trades slightly higher near 1.3635 in early European dealings on Thursday, staying above 1.3600. Lower crude oil prices have weighed on the Canadian Dollar, which often moves with oil.
US President Donald Trump said on Wednesday he had “very good talks” with Iran and that “it’s very possible we’ll make a deal”. Iran’s Foreign Ministry spokesman, Esmaeil Baghaei, said a US proposal is “under review”, with a response to mediator Pakistan after “finalizing its views”.
Technical Picture And Momentum
On the daily chart, the pair keeps a bearish bias while below the 100-day EMA near 1.3740 and the 20-period SMA. Price remains in the lower half of the Bollinger range, and the RSI (14) is about 42.
Resistance starts at the Bollinger midline at 1.3678, then the 100-day EMA at 1.3740, and the upper Bollinger band near 1.3808. Support sits at the lower Bollinger band around 1.3548.
The Canadian Dollar is affected by Bank of Canada interest rates, oil prices, economic conditions, inflation, trade balance, market risk appetite, and the US economy. The Bank of Canada aims to keep inflation at 1–3% and can also use quantitative easing or tightening.
Looking back at the analysis from 2025, we saw a bearish bias for USD/CAD as long as it stayed below the 100-day EMA near 1.3740. At that time, much of the focus was on technical levels and geopolitical news, such as potential peace deals affecting oil prices. The market was watching for a break below support at 1.3548.
Monetary Policy Divergence And Outlook
Today, on May 7, 2026, the situation has evolved significantly, with the pair now trading firmly above 1.3800. The dominant driver is no longer short-term oil price fluctuations but the clear divergence in monetary policy between Canada and the United States. The Bank of Canada began a cautious easing cycle last month, cutting its key rate to 3.75%, while the US Federal Reserve holds steady at 4.25% due to persistent service-sector inflation.
This interest rate differential of 50 basis points in favor of the US dollar provides a powerful incentive to be long USD/CAD. Recent economic data supports this divergence, with Canada’s latest employment report showing a modest rise in unemployment to 6.3% and inflation tracking down to 2.4%. In contrast, the latest US Non-Farm Payrolls data from April showed a resilient addition of 210,000 jobs, keeping pressure on the Fed to remain hawkish.
Given this context, we should position for continued strength in USD/CAD. Buying call options with a strike price around 1.3900 for the coming weeks offers a defined-risk way to profit from the expected upward trend. This strategy allows us to capitalize on the strong fundamental tailwind of rate differentials.
The primary risk to this position would be a surprisingly weak US inflation report or a sudden spike in WTI crude oil prices above the $90 mark, which currently trades near $85 per barrel. Therefore, we should use the old support level around 1.3740 as a key area to reassess our bullish stance. Any move back towards that level would signal that the underlying market dynamics are beginning to shift.
