USD/CAD Forecast: 1.38607 Rebound Meets the 1.38968 Average

• 1.38607 on the 4-hour chart, up 0.18% and rebounding from the 1.3700 low set on 22 August.
• The Bank of Canada has held its overnight rate at 2.25% for six consecutive decisions, leaving the pair to trade on the dollar and on crude.
• 1.38968 is the falling average that decides whether this is a bounce or a base.

Fundamental Analysis: USD/CAD

The Bank of Canada left the target for the overnight rate at 2.25% on 15 July, its sixth consecutive hold. The statement acknowledged that geopolitical tensions are still feeding through to energy prices but maintained the expectation that inflation grinds back toward the 2% target over time. Six holds in a row is a central bank that has decided it is at the right level and is waiting for the data to tell it otherwise.

That leaves a wide and stable policy gap, with the Fed at 3.50-3.75% and three FOMC members having dissented in July in favour of a further increase. On paper that should anchor USD/CAD higher. It has not, because the dollar leg has been the weaker of the two: Treasury buyback operations for longer-dated notes and bonds were doubled, pushing the dollar to three-month lows and driving the month-long slide from 1.4050 down to 1.3700.

Crude is the swing factor from here. WTI has fallen back to roughly $80.80 after OPEC+ approved a 188,000 barrel-per-day increase for September on 2 August, completing the rollback of the 1.65 million barrel voluntary cut, and after signals that US pressure on Iran stopped short of secondary sanctions. A softer crude tape removes one of the loonie's supports, which is the most plausible fundamental reason for the current rebound to extend.

Technical Analysis: USD/CAD

The dominant structure is the decline that started at 1.4050 on 5 August and ran almost without interruption to 1.3700 on 22 August, a move of some 350 pips that broke through every moving average on the chart. What has happened since is a recovery rather than a reversal: price has retraced to 1.38609 and reclaimed the two fastest averages at 1.38336 and 1.38489, but the slower pair remain overhead and still point lower.

Resistance is 1.38968 first, then 1.39532, and those two levels together define the ceiling on this bounce. Support is 1.38489, then 1.38336, with the 1.3700 low as the structural floor. A daily close above 1.39532 would invalidate the bearish read, since it would put price back above the full moving-average stack for the first time this month.

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