The USD/CAD currency pair is currently caught in a phase of indecision, influenced by several opposing market forces. Rising oil prices are providing support to the Canadian Dollar, simultaneously presenting a challenge for the USD. The recent rebound in U.S. bond yields and a shift towards a more risk-averse sentiment have contributed to the strength of the U.S. Dollar, making it difficult for USD/CAD to build on last Friday’s increase of over 100 pips. As the week begins, the pair is trading within a narrow range, showing limited momentum.
Oil prices have shown some recovery from their lowest levels since June 2023, thanks to factors such as an impending hurricane threatening the U.S. Gulf Coast. This region accounts for a significant portion of U.S. refining output, which adds to bullish sentiment for crude. However, concerns about global oil supply persist as OPEC+ delays its production increase and worries about weakening demand from China loom large. Furthermore, disappointing U.S. job figures have raised additional doubts about fuel consumption, further weighing on oil price expectations.
In the latest jobs report from the U.S. Bureau of Labor Statistics, employment figures were notably below expectations, with only 142,000 jobs added in August compared to the anticipated 160,000. Despite a slight decrease in the unemployment rate and an uptick in wage growth, the data has reduced expectations for a significant interest rate cut by the Federal Reserve. Current market predictions indicate a 70% probability of a 25 basis-point rate cut this month, while the likelihood of a larger reduction sits at 30%.
The weaker job data has placed added pressure on the Canadian Dollar, raising speculation about potential interest rate cuts from the Bank of Canada. Consequently, this trend supports a generally positive outlook for USD/CAD. Without significant economic data on the horizon from either the U.S. or Canada, market participants will likely focus their attention on ongoing developments in the U.S. Dollar and oil prices.
From a technical standpoint, while the oscillators on the daily chart are showing signs of improvement, they have not yet signaled a clear upward trend. A confirmed breach above the critical 200-day Simple Moving Average, currently positioned near the 1.3600 level, is needed to open the door for further gains. Should the pair break through, it may target levels like the 1.3700 level, which coincides with significant Fibonacci retracement levels. Conversely, if USD/CAD drops below the 1.3550 support level, it could descend toward the 1.3500 psychological barrier, with further declines exposing even lower levels not seen since March.
