The USD/CAD currency pair is under extreme pressure on Tuesday. It’s floating near the 1.3800 level thanks to further US Dollar liquidation. The pair made a short-lived recovery after hitting a six-month low of 1.3780. Right now, it’s finding hard to keep above water and is pulling in new bears under the trend line during the Asian trading session. Analysts expect this trend to continue. They see the USD/CAD consolidating down towards the support at 1.3750-1.3745 and potentially heading to the key 1.3700 level after that too.
A few key elements are underlying the current state of the USD/CAD pair. Major factors are the US Dollar’s strength, the direction of Bank of Canada (BoC) interest rate policy, and changing crude oil prices. Oil prices, being Canada’s largest export, have a huge impact on the Canadian economy. This impact then feeds into the strength of the Canadian dollar relative to the US dollar directly.
Fresh Supply and Market Sentiment
During Tuesday’s session, the USD/CAD exchange rate ran into fresh supply as it tried to build on a modest overnight rebound. Yet, with the continued bias to sell the US Dollar, it has been difficult for the pair to find upside momentum. As we have seen this past week’s trading activity, with cautiousness still keying up market participants, thus increasing the selling pressure.
The Asian trading session was the signal for sellers to charge into the market. This surge of activity was indicative of a much broader negative sentiment among traders. Investors are telling us in no uncertain terms that they have no confidence in the USD. Recent positive economic indicators and encouraging metrics combined with the current geopolitical landscape are fueling this sentiment.
Most analysts have been transfixed by the pair’s performance. They’re waiting to see evidence of a top or deeper move down as momentum starts to turn more towards bearish undertones. The daily chart below illustrates oscillators deeply negative as well. This adds to our conviction that USD/CAD has further to fall.
Technical Levels and Future Projections
For USD/CAD pair, the upside will be capped around 1.3950-1.3955 areas. As it approaches the 1.3975-1.3980 supply zone, sellers may look to protect their position and cause a challenge. In the event that this bullish movement occurs, it may briefly challenge the psychological resistance level at 1.4000. It will put the 200-day Simple Moving Average (SMA) to the test. There is a healthy dose of wariness among analysts regarding the current market. They think a more durable recovery above these levels does not appear possible in the near-term.
According to market analysts, the USD/CAD pair is expected to fall deeper towards the 1.3700 level. They believe support would come in the mid-1.3600s area. This projection continues to indicate a bearish outlook for the pair as it flounders under macroeconomic pressures and technical obstacles.
If there is enough follow-through buying, regaining the 1.3900 round figure may be within reach. If external factors continue to be unfavorable for the USD, such recovery could be short-lived at best.
Economic Influences on Currency Fluctuations
Market sentiment is not the only thing that drives the USD/CAD pair. Economic data and policy decisions from Canada and the United States are a crucial factor. One of the major factors is the levels of interest rates determined by the Bank of Canada (BoC). Things like inflation rates and trade balance figures are economic indicators that hold immense importance.
As Canada’s economy moves, expanding beyond energy, increasing or decreasing oil prices add a critical dynamic to its dollar valuation. Typically, when oil prices go up, the Canadian dollar appreciates in value since the increased export revenue strengthens the economy. On the other hand when oil prices fall, the Canadian dollar usually depreciates.
Fundamental indicators of economic health, including inflation and trade balances, provide important context to Canada’s economy. Together these factors respond to and reinforce investor perceptions. They inform and guide trading strategies. Therefore, any changes in these basic indicators’ trends would make the exchange rate USD/CAD correct quickly.