On Thursday, the most common currency in the news, the Canadian dollar or Loonie, took a serious dive. The USD/CAD currency pair also spiked, closing near 1.4120. The increase marks the ninth consecutive year that this strong upward trend has continued. Starting in late September, USD/CAD has formed a sequence of higher highs and higher lows. Over the past six trading days, the Loonie has declined 1.81% in value relative to the U.S. dollar. This steady decline underscores the continuing pressures on the Canadian economy.
Count on the USD/CAD pair, which recently soared after rebounding off the 200-day Exponential Moving Average (EMA) at roughly 1.3900. It’s this technical move that has captivated traders. This important technical indicator has proven to be support frequently in the past and its recent retest was key in the explosive price action we saw. With the recession deepening, the Canadian dollar has continued to slide for a number of fundamental reasons. Business sentiment is disappointing, as most recently told by the Ivey Purchasing Managers Index (PMI) readings.
Economic Indicators Weigh on the Loonie
The Canadian Ivey PMI for October showed a bigger-than-expected drop in business owner confidence, dropping to 52.4. This figure was a much larger contraction than the projected move of 59.8 going down to 55.2. The current state of the Canadian economy Overall, the challenges are enormous. Sky-high tariffs are killing growth opportunities.
Moving in the opposite direction of Canada’s economic signals, the United States printed a very disturbing piece of data for labor market rigidity. The Challenger Job Cuts report for October didn’t contain all bad news. Net job cuts jumped to 153,000, which was among the worst figures we’ve seen reported outside of the COVID-19 pandemic. This juxtaposition of labor market weakness in the U.S. alongside Canada’s economic struggles may contribute to further volatility in the USD/CAD pair.
Market participants remain vigilant at important levels in the USD/CAD forex pair. Immediate support is evident forming at the 1.4000 figure, while notable support is seen at the 200-day EMA just under 1.3900. Immediate resistance for the pair is located at 1.4150, followed by major high at 1.4415. Assuming this trend continues, these levels may act as retest targets as bullish momentum builds.
Oil Prices Impacting Canadian Currency
As Canada’s largest export by a wide margin, petroleum prices have an outsized impact on the value of the Canadian dollar. Recent volatility in oil prices has introduced an additional, complicating dynamic to the Loonie’s performance. Falling oil prices would compound what’s already a tough adjustment for Canada’s economy. This would further exacerbate the pressure on the CAD as the U.S. dollar rises.
Market analysts are saying momentum indicators are happening, but are stretched. Additionally, the daily RSI is at risk of crossing above 70. Some traders will lock in short term profits on all this new overbought action. This might result in a dip for USD/CAD before the pair resumes its bullish path higher.
The relationship between oil prices and currency valuation further illustrates how vital global commodity markets are to Canada’s economic wellbeing. Speculators are already busy evaluating what those possibilities might be. Therefore, volatility in oil prices should continue to be an important driver of the CAD/USD value.
Future Outlook for USD/CAD
USD/CAD traders are truly hoping to see this pair hold above the key psychological level of 1.41. Doing so will help validate the continued bullish momentum we’re seeing as we approach the middle of November. The market’s response to upcoming economic data releases and geopolitical developments will play a vital role in determining the trajectory of both currencies.
Uncertainties remain on both sides of the border on the Canadian and U.S. economic landscapes. To wit, market participants need to be mindful of the potential traps as they pursue profit opportunities in this fast-evolving landscape. The balance between economic recovery, job market resilience, and commodity price fluctuations will define future movements in the USD/CAD currency pair.