USD/CAD Price Forecast: Drifts higher above 1.4250, remains bullish but overbought

The USD/CAD currency pair experienced a rise above 1.4250 during early European trading hours on Monday. Oil prices experienced a decline as increased crude exports from the Middle East and G7 nations, coupled with an oil release, added to the supply, putting downward pressure on the Canadian Dollar (CAD) against the US Dollar (USD).

Canada, being a major oil exporter, saw the impact of low crude oil prices, which had a negative effect on the Loonie. However, recent soft US jobs data significantly reduced expectations of a Federal Reserve (Fed) rate hike in October, potentially weakening the Greenback. On Friday, the US Bureau of Labor Statistics (BLS) reported that US Nonfarm Payrolls (NFP) rose by 29,000 in September, which was lower than the estimated 133,000 increase.

This figure marked a change from the revised 162,000 increase in August data. US traders' perception of a US rate hike this month decreased from around 70% earlier in the week to 22.1%, according to the CME FedWatch Tool. TD Securities noted that "the wheels fell off the bus in rates this week," with the Canadian mid-curve under heavy pressure as the 10-year peaked above 4% and the 2s10s steepened to early-September levels.

Analysts highlighted the divergence between cross-market and outright moves, with the 10s near a 2-year high and the CAN-US 10s hitting a 1-year low. The long-end saw a significant move, with the 10s underperforming the front-end but outperforming the move in duration. Despite the sharp repricing, TD Securities mentioned that while the belly of the curve was elevated relative to recent history, yields were expected to moderate by 10-15 basis points by year-end.

Fed's Logan delivered a more hawkish message, with an FXS Speechtracker score of 9.2/10, which was higher than the 8.1/10 historical average. This indicated a stronger tightening bias relative to the established baseline, suggesting that higher yields might reflect increased term premiums, potentially reducing the need for additional tightening.

The FXS Fed Sentiment Index rose by 1.68 points to 136.59, firmly in a hawkish territory, signaling a shift toward stronger tightening expectations following Logan's remarks. The USD/CAD pair extended its advance above the 100-day simple moving average and the 20-day Bollinger middle band, indicating a clear bullish near-term bias.

The price was pressing towards the upper Bollinger band at 1.4352, while the 14-period Relative Strength Index (RSI) at 79.3 indicated that the upside remained dominant but was increasingly vulnerable to a corrective pullback rather than a fresh impulsive move higher. Immediate resistance was located at the 20-day Bollinger upper band near 1.4350, where a rejection could trigger a pause or consolidation in the uptrend.

A follow-through buying above this level could pave the way to the April 1, 2025, high of 1.4415, en route to the March 3, 2025, high of 1.4542. The key support level to watch was the October 1, 2024, low of 1.4221, followed by the July 28, 2024, high of 1.4129, and the Bollinger middle band at 1.4045. The 100-day SMA and psychological mark at 1.4000 was a significant contention level to monitor.