USD/CAD may experience depreciation as increasing crude prices could bolster the Canadian Dollar. Middle East tensions and restrictions on transit through the Strait of Hormuz are driving WTI crude prices back toward the $90 per barrel mark. Goldman Sachs observed that a benign CPI reading might inhibit the Federal Reserve from increasing interest rates. USD/CAD remains steady after registering modest gains in the previous day, trading around 1.3830. However, the pair could encounter downside pressure as the commodity-linked Canadian Dollar may receive support from increasing crude oil prices, considering Canada’s status as a prominent crude exporter. West Texas Intermediate rebounded toward $90.00 per barrel following recent military strikes between the United States and Iran.
The conflict escalated over the weekend when the US targeted three Iranian tankers following missile attacks on American warships, prompting Tehran to declare a new restricted zone around the Strait of Hormuz. TD Securities indicates that the most recent labour market data from both sides of the border has tilted the balance of risks unfavourably for the Canadian Dollar. The bank notes that “the genuine upside surprise in US payrolls and downside surprise in Canada was enough to overwhelm the temporary support from the BoC’s hawkish tilt,” leaving the Loonie vulnerable to underperformance even as the central bank maintains a more assertive policy stance. Labour market data from the US Bureau of Labour Statistics indicated an increase in Nonfarm Payrolls by 162,000 in August, significantly surpassing the anticipated figure of 56,000, while the Unemployment Rate remained unchanged at 4.1%.
Although the greenback remains soft, its losses may be capped as traders price in higher odds of monetary tightening; the CME FedWatch tool now reflects a 58.3% chance of a 25-basis-point Fed rate increase in September. Adding to the USD/CAD pair’s potential weakness, the US Dollar is struggling amid broader market uncertainty ahead of crucial US inflation data. Goldman Sachs observed that a favourable Consumer Price Index reading might prevent the Federal Reserve from increasing rates, despite the robust labour market data from August having already overcome a significant obstacle for a possible hike. In the daily chart, USD/CAD is trading at 1.3830, maintaining a slight bearish bias as the spot remains below both the short-term and medium-term trend indicators.
Price is constrained by the nine- and 50-day Exponential Moving Averages, indicating that rallies are being sold off, while the 14-day Relative Strength Index hovering around 43 suggests a lack of strong momentum, rather than signalling a definitive reversal. On the topside, immediate resistance is observed at the nine-day EMA near 1.3845, with a more substantial barrier at the 50-day EMA around 1.3931, where sellers may seek to uphold the overarching negative trend. In the absence of clearly defined technical floors indicated by moving averages within the current dataset, any additional pullback from these elevated levels would render USD/CAD susceptible to testing lower chart lows.
