- USD/CAD stages a modest recovery from over a two-week low touched earlier this Friday.
- Bullish Oil prices could underpin the Loonie and cap gains amid a subdued USD demand.
- Investors now look to the US NFP report and Canadian Q2 GDP print for a fresh impetus.
The USD/CAD pair shows some resilience below the 1.3500 psychological mark and stages a modest recovery from over a two-week low touched during the Asian session on Friday. Spot prices, for now, seem to have stalled a three-day-old corrective slide from the vicinity of a nearly three-month high, around the 1.3635-1.3640 region set on Tuesday, though a combination of factors holds back bulls from placing aggressive bets.
Crude Oil prices scale higher for the fourth straight day and climb to over a three-week high, bolstered by the prospect of tighter global supplies. Government data released on Wednesday showed that US Crude inventories declined more-than-expected, by 10.6 million barrels last week, summing up to a fall of 34 million barrels since the middle of July and reflecting a potential supply deficit. Apart from this, expectations that the OPEC+ group of Oil producers will extend output cuts to the end of the year largely offset concerns that slowing global economic growth will dent fuel demand and continue to push Oil prices higher. This, in turn, is seen underpinning the commodity-linked Loonie, which, along with subdued US Dollar (USD) price action, acts as a headwind for the USD/CAD pair, at least for the time being.
The uncertainty over the Federal Reserve’s (Fed) rate-hike path fails to assist the USD Index (DXY), which tracks the Greenback against a basket of currencies, to capitalize on the overnight goodish rebound from a technically significant 200-day Simple Moving Average (SMA). The US Bureau of Economic Analysis reported on Thursday that the annual Core PCE Price Index – the Fed’s preferred inflation gauge – edged up to 4.2% in August from the 4.1% recorded in the previous month. This keeps the door open for one more 25 bps lift-off in 2023 and lends some support to the buck. That said, other US macro data released earlier this week – the ADP report and the revised Q2 GDP print – suggested that the resilient US economy is starting to lose steam, which might force the Fed to hold rates steady.
The aforementioned mixed fundamental backdrop warrants some caution before positioning for any meaningful appreciating move for the USD/CAD pair ahead of Friday’s release of the closely-watched US monthly employment details. The popularly known US NFP report is due later during the early North American session and will influence market expectations about the Fed’s next policy move, which, in turn, will drive the USD demand. Investors will further take cues from the simultaneous release of the Canadian GDP report for the second quarter. This, along with Oil price dynamics, should provide some impetus to the Canadian Dollar (CAD) and infuse volatility around the major on the last day of the week. Nevertheless, spot prices remain on track to register weekly losses for the first time in the previous six.
From a technical perspective, the recent sustained breakout through the 200-day SMA and the emergence of fresh buying on Friday favours the USD/CAD bulls. Moreover, the Relative Strength Index (RSI) on the daily chart has eased from the overbought territory and supports prospects for the resumption of the upward trajectory from sub-1.3100 levels, or the YTD low touched in July.
That said, any subsequent move up is likely to confront some resistance near the overnight swing high, around the 1.3555-1.3560 region, above which spot prices could aim back to reclaim the 1.3600 round-figure mark. The next relevant hurdle is pegged near the 1.3635-1.3640 area, or the multi-month peak touched last Friday. A sustained strength beyond has the potential to lift the pair to the 1.3700 mark en route to the 1.3740-1.3745 resistance zone, the 1.3800 round figure and the YTD peak, around the 1.3860 area touched in March.
On the flip side, weakness back below the 1.3500 mark could attract fresh buyers and remain limited near the 1.3460-1.3455 region, or the 200-day SMA. A convincing break below would make the USD/CAD pair vulnerable and accelerate the downfall towards the next relevant support near the 1.3400 round figure en route to the 1.3370 region.
Source: FX STREET