• USD/CAD may rebound toward the nearly 18-month high of 1.4262.
• The 14-day Relative Strength Index near 74 signals overbought conditions.
• The primary support lies at the nine-day EMA of 1.4157.

USD/CAD loses ground for the second successive day, trading around 1.4210 during Asian hours on Friday. The technical analysis of the daily chart indicates that the price is positioned slightly below the top trendline of an ascending channel, suggesting a persistent bullish bias.

The USD/CAD pair is maintaining a bullish near-term bias as spot holds above both the nine- and 50-day Exponential Moving Averages (EMAs). The alignment of price over these trend gauges suggests underlying demand, although the 14-day Relative Strength Index (RSI) hovering in overbought territory near 74 hints that upside momentum may be stretched in the short run.

The USD/CAD pair may rebound and test the nearly 18-month high of 1.4262, recorded on October 1, followed by the top trendline of the ascending channel around 1.4270. A successful break above the channel would reinforce the bullish bias and support the pair to test the psychological level of 1.4300.

On the downside, the primary support lies at the nine-day EMA of 1.4157. A break below the short-term price average would weaken the bullish bias and put downward pressure on the USD/CAD pair to navigate the region around the bottom trendline of the ascending channel around the 50-day EMA of 1.4000.

Canadian dollar faces headwinds as US-Canada yield gap widens

Analysts at Scotiabank stress that “the outlook for relative central bank policy remains a dominant driver,” with the “continued widening in US-Canada yield spreads” presenting “a meaningful headwind for the CAD.” In their view, the growing policy divergence between the Fed and the BoC is increasingly weighing on the Canadian dollar’s performance against the USD.

Logan’s hawkish tilt lifts Fed sentiment, supports Dollar upside

Fed’s Logan delivered a notably more hawkish message, with a FXS Speechtracker score of 9.2/10 compared to the established baseline of 8.1/10, underscoring a stronger conviction that policy must tighten further. The emphasis that higher yields may reflect increased term premiums, potentially reducing the need for additional tightening, sits in tension with the assertion that policy is not yet restrictive and that at least 50 bps more in rate hikes are needed to revive price stability and secure the 2% inflation target. Overall, the speech signals a Fed willing to lean into further tightening despite balanced labor conditions and strengthening economic expansion, a backdrop typically supportive for the Dollar and a headwind for risk-sensitive FX.

The FXS Fed Sentiment Index rose by 1.68 points to 136.59, reinforcing that the Fed narrative remains firmly in hawkish territory well above the neutral 100 threshold. This upward move in the FXS Fed Sentiment Index, aligned with the elevated FXS Speechtracker score, points to growing market expectations of additional rate hikes, which should underpin the Dollar while keeping pressure on Euro and Yen crosses.