• USD/CAD sticks to a positive bias and remains close to the year-to-date high, set earlier this week.
• The CAD underperforms amid weak oil prices, US-Canada tensions, and the BoC-Fed divergence.
• Geopolitical risks and elevated US bond yields underpin the USD, further supporting spot prices.

The USD/CAD pair retains its bullish undertone on Thursday, trading around the 1.4265 region during the Asian session, well within striking distance of the highest level since April 2025, touched earlier this week. Moreover, the supportive fundamental backdrop suggests that the path of least resistance for spot prices remains to the upside and backs the case for an extension of a one-month-old strong uptrend.

The Canadian dollar (CAD) has been underperforming due to heavy US-Canada trade tensions, a sluggish domestic economy, and the Bank of Canada’s (BoC) predominantly dovish policy stance. In fact, traders seem convinced that the BoC has less reason to raise interest rates than the US Federal Reserve (Fed), as Canada’s weaker economic outlook could contain broader inflationary pressures. Meanwhile, crude oil prices hang near a one-month low as easing supply concerns counter geopolitical uncertainties, further undermining the commodity-linked Loonie and acting as a tailwind for the USD/CAD pair amid a bullish US Dollar (USD).

The USD Index (DXY), which tracks the Greenback against a basket of currencies, sits near an 18-month top amid bets that the US central bank will raise borrowing costs by the year-end, bolstered by Wednesday’s hawkish FOMC Minutes. Adding to this, elevated US bond yields and the risk of a further escalation of tensions in the Middle East benefit the safe-haven buck. In the latest developments, the Pentagon reportedly told US Central Command (CENTCOM) several days ago to conclude preparations for resuming major combat operations in Iran as US President Donald Trump weighs a specific date for launching strikes.

US and Israeli sources said that US attacks could happen before the US midterm elections and possibly the Israeli elections a week earlier. Furthermore, the Saudi-led coalition said it retaliated against the Houthis on Wednesday and attacked more than 80 Houthi military sites across the governorates of Saada, Hodeidah, Jawf and Marib. This, in turn, favors USD bulls, which, along with the divergent BoC-Fed policy outlooks, validates the near-term constructive outlook for the USD/CAD pair.

USD/CAD daily chart

Technical Analysis

The USD/CAD pair is in a clearly bullish near-term structure above the 1.4245-1.4250 congestion zone. That said, the Relative Strength Index (14) at 72.5 stretches into overbought territory, suggesting strong but potentially overextended upside momentum after the latest leg higher. Any corrective pullback, however, could find decent support near last Friday’s swing low, around the 1.4200 round figure. Meanwhile, a convincing break below might prompt some technical selling and drag the USD/CAD pair to the 1.4150-1.4145 region.