Canadian Dollar sits near September 16 highs vs USD as traders eye jobs data on Friday
- USD/CAD attracts sellers for the second straight day amid the post-election fallout in the US Dollar.
- Fed hike bets limit USD losses, while bearish oil prices undermine the Loonie and support the pair.
- Traders also opt to wait for the release of monthly jobs reports from the US and Canada on Friday.
The USD/CAD pair remains under some selling pressure for the second straight day and trades around mid-1.3900s during the early European session on Thursday, close to its lowest level since September 16, set the previous day.
The US Dollar (USD) drops to a fresh low since late September as a Democratic sweep in the US midterm elections raised worries about fiscal gridlock, which could limit government spending and lead to slower economic growth. Furthermore, the outcome lowered expectations that US President Donald Trump will resume military strikes against ? Iran, fueling hopes for an end to the Middle East conflict. This turns out to be another factor weighing on the safe-haven buck, which, in turn, is seen exerting pressure on the USD/CAD pair.
Meanwhile, the latest optimism drags crude oil prices to a two-month low, which helps ease inflation fears and leads to a further decline in US bond yields. Investors, however, are still pricing in over an 80% chance that the US Federal Reserve (Fed) will raise borrowing costs again in December. Moreover, the geopolitical risk premium remains in play amid the US-Iran standoff over the Strait of Hormuz. This limits deeper USD losses, while bearish oil prices undermine the commodity-linked Loonie and could support the USD/CAD pair.
Traders might also opt to wait for the release of monthly employment details from the US and Canada, due on Friday, before placing fresh directional bets. The well-known US Nonfarm Payrolls (NFP) report, along with speeches from influential FOMC members, will be looked at for more cues about the Fed's future policy path and drive USD demand. Apart from this, the incoming geopolitical headlines could infuse some volatility and influence oil price dynamics, providing some meaningful trading impetus to the USD/CAD pair.
USD/CAD 4-hour chart
Technical Analysis
In the four-hour chart, the USD/CAD pair holds a bearish tone below the 200-period Simple Moving Average (SMA) at 1.4119 and under the 61.8% Fibonacci retracement at 1.3970 of the latest upswing. The next relevant is seen at the 78.6% retracement at 1.3880, with a deeper floor around 1.3765, where buyers would be expected to show more interest if the correction extends.
On the topside, initial resistance emerges at the 61.8% Fibo. retracement at 1.3970, followed by the 50% level at 1.4033 and the 38.2% retracement at 1.4097. Above these, the 200-period SMA at 1.4119 and the 23.6% retracement at 1.4175 guard the path toward the recent cycle high near 1.4302.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
