USD/CAD Outlook: Bullish Reversal as Political and Geopolitical Risks Ease

USD/CAD has delivered a notable bullish reversal after probing below the 1.3800 level, supported by a clear improvement in the US macro and political backdrop. Concerns around Federal Reserve independence have eased, geopolitical tensions linked to Greenland have cooled, and market pricing now reflects fewer Fed rate cuts in 2026. With technical momentum neutral, price action around the 200-day moving average remains the key driver for near-term direction.

Fed Independence Risk Recedes

Markets have responded positively to developments surrounding Fed Governor Lisa Cook. Early signals from the Supreme Court hearing suggest a low probability that her removal will be upheld, reducing fears of political interference in US monetary policy.

This is significant for confidence in the Federal Reserve’s independence. With Cook likely to remain in her role and other governors continuing to demonstrate policy discipline, the perceived risk of politically driven monetary decisions has diminished. As a result, the risk premium that had weighed on the US dollar has begun to fade.

Geopolitical Backdrop Improves

Geopolitical risk has also eased following progress on a Greenland framework between the United States and its allies. Constructive dialogue at the World Economic Forum has reduced fears of a broader transatlantic escalation, including concerns that Europe could deploy retaliatory financial measures.

Together with improving Fed credibility, this has reduced the likelihood of a renewed “sell America” episode and reinforced support for the US dollar.

Fed Rate Cut Expectations Reprice

Market pricing reflects this shift in sentiment. Futures now imply around 45 basis points of Fed rate cuts this year, down sharply from late 2025 expectations. This repricing suggests markets are more confident that policy decisions will remain data dependent rather than politically influenced.

This matters for USD/CAD, which has maintained a strong relationship with short-term US Canada rate differentials. With that correlation still elevated, stable or firmer Fed expectations continue to provide a supportive backdrop for the pair.

Data Calendar Offers Limited Challenge

While the US data calendar remains busy, most releases are backward looking and unlikely to materially alter Fed expectations. Core PCE, GDP revisions, and weekly jobless claims are not expected to challenge the prevailing policy narrative, keeping focus firmly on price action and broader macro drivers.

USD/CAD Technical Outlook

USD/CAD has staged a sharp reversal from below 1.3800, producing a bullish hammer on the daily chart. Early follow-through raises the prospect of a broader reversal structure forming, reinforcing near-term upside risk.

The 200-day simple moving average is the key level to monitor. Holding above this zone keeps the bullish bias intact.

• Upside levels: A sustained hold above the 200-day average opens the door toward 1.3860 initially. Beyond that, the 50-day moving average and the 1.3926 region are key resistance areas.

• Downside risk: A decisive move back below the 200-day average would weaken the bullish case and expose a retest of 1.3800. This scenario currently appears lower probability.

  
  

Momentum indicators such as RSI and MACD remain neutral, reinforcing the need to prioritise price action and key technical levels over indicator signals.

USD/CAD Daily Chart

Bottom Line

USD/CAD has received a meaningful boost from easing political and geopolitical risks, alongside firmer Fed policy expectations. While momentum indicators remain neutral, the bullish reversal off 1.3800 shifts near-term risks to the upside as long as price holds above the 200-day moving average.