The USD/CAD currency pair has shot up to a 2-week high. To top off this increase, it is representative of the ongoing trade concerns that continue to cast a shadow over the CAD. The USD/CAD is up for the second consecutive day. That is the seventh advance in eight sessions! Traders are driving the fortunes along a rapidly changing roadway. As with other commodities, they are watching a handful of important economic indicators and central banks, since it may affect future price trajectories.
The USD/CAD bulls now look to retake 0.75 in pursuit of continued strength above the 200-day Exponential Moving Average (EMA). This important level now floats around the 1.3870 area. A credible acceptance beyond this technical ceiling would pave the way for larger advances. This could pave the way for a retest of the critical round number 1.4000, a key psychological barrier.
The duo surely has an uphill battle. They’re especially sheltered by increasing rumor concerning a 25-basis-point price cut from the Bank of Canada, due September 17th. This expected rate cut is an ongoing negative for the CAD and has added to a defensive mindset among market participants. An aggressive break below the support zone of 1.3830-1.3825 would trigger more technical selling. This would likely drag the USD/CAD pair lower toward the near-daily horizontal support, which occurs in the 1.3755-1.3750 range.
Over the last few trading days, the US Dollar (USD) has struggled to recover from its recent dollar lows going back to July 28th. This fight is mostly the result of dovish Fed expectations, I meant to say. Last Friday’s surprisingly disappointing Nonfarm Payrolls (NFP) news flipped the market’s mood upside down. This report pointed to more evidence of a cooling labor market in the United States. This surprise move has injected uncertainty into the Fed’s eventual monetary policy direction, putting traders on their heels.
The climate action dollar flies in the face of that certainty, and that certainty is starting to grow. Next year will see a mandated review of the USMCA, the free-trade agreement with the United States and Mexico. These types of developments only increase the risks for the Canadian economy and add to the CAD’s volatility.
Notwithstanding these dynamics, oil prices have risen somewhat. This has underpinned the Canadian dollar, capping the upside potential of the USD/CAD pair. Oil prices are highly correlated with the fortunes of the Canadian economy. The reason for this connection is that Canada is the United States’ largest oil exporter. However, speculation surrounding Fed rate cuts continues to limit any significant recovery in USD spot prices as traders await key inflation data.
Fed officials and market participants alike are anxious in anticipation of the next set of economic releases. Wednesday we get the US PPI, which should set up Thursday’s US CPI nicely. These forthcoming data points will certainly help paint a clearer picture of inflation’s trajectory. Second, they will influence the Federal Reserve and Bank of Canada’s future monetary policy decisions.
At the moment, the 1.3830-1.3825 area is considered the nearest support for the USD/CAD currency pair, while the support zone is seen in the area of 1.3800-1.3790. Others technical oscillators on the daily chart provide increasingly positive bias. This is an early indicator that buyers are eyeing for upside, that should see spot prices rise above the 1.3900-level.