USD/CAD Bulls on the Defensive Amid USD Pullback
The USD/CAD pair struggles to capitalize on a modest Asian session uptick on Wednesday and remains below its highest level since August 6, around the 1.3835-1.3840 region touched the previous day. Spot prices currently trade around the 1.3775 region, nearly unchanged for the day, though the fundamental backdrop supports prospects for an extension of the recent strong rally witnessed over the past three weeks or so.
Factors Influencing USD/CAD Pair Movement
- USD eases from over a two-month high, acting as a headwind for USD/CAD pair.
- Expectations for a less aggressive Fed policy easing limit losses for USD.
- Bets for a larger BoC rate cut and weaker Crude Oil prices could offer support to the pair.
The US Dollar’s corrective decline seems elusive due to firming expectations for a less aggressive policy easing by the Federal Reserve (Fed) and a regular 25 basis points (bps) interest rate cut in November. On the other hand, bets for a larger, 50 bps rate cut by the Bank of Canada, alongside softer domestic consumer inflation figures, might continue to weigh on the Canadian Dollar (CAD) and support the USD/CAD pair. A report from Statistics Canada showed a contraction in the headline Consumer Price Index (CPI) in September, raising hopes for a larger-than-usual BoC rate cut next week.
Technical Analysis and Outlook
Even from a technical perspective, the Relative Strength Index (RSI) eased from slightly overbought conditions on the daily chart. This supports prospects for the emergence of some dip-buying at lower levels. Traders are advised to wait for strong follow-through selling before confirming a top-out in the near term and positioning for any meaningful corrective decline. The path of least resistance for the USD/CAD pair remains to the upside.
Upcoming Market Catalysts
Traders now look to the Canadian economic docket – featuring the release of Manufacturing Sales and Housing Starts. Additionally, the USD and Crude Oil price dynamics should provide impetus to the currency pair.
Canadian Dollar FAQs
- Key Factors Driving the Canadian Dollar (CAD): Interest rates set by the Bank of Canada, price of Oil, health of the economy, inflation, Trade Balance, market sentiment, and US economic health.
- Influence of the Bank of Canada (BoC): Sets interest rates affecting lending rates, aims to maintain inflation, and can use quantitative easing/tightening.
- Impact of Oil Prices: Petroleum is Canada’s biggest export, so Oil price affects CAD value.
- Role of Inflation: Higher inflation can lead to higher interest rates and increased demand for CAD.
- Macroeconomic Data Releases: GDP, PMIs, employment, and consumer sentiment surveys can influence CAD direction.