Increasing crude oil prices approaching four-month peaks offer robust fundamental backing to the commodity-linked Canadian Dollar. Saudi pipeline shutdowns and postponed discussions regarding regional shipping corridors continue to heighten global energy supply anxieties. The broader currency pair experiences upward pressure as strong expectations for Federal Reserve rate hikes may enhance the value of the US Dollar. USD/CAD pauses its three-day upward trend, currently trading near 1.3870 during the Asian session on Monday. The pair inches lower as the commodity-linked Canadian Dollar finds support from elevated oil prices.
Crude oil prices are trending upwards, approaching levels not seen in nearly four months, in the wake of a drone attack that compelled Saudi Arabia to halt operations on a significant crude pipeline. This disruption has significantly affected a vital route that has historically served to circumvent the Strait of Hormuz. In response to the recent attacks, Saudi operations on the East-West pipeline were promptly halted, with officials remaining silent on the timeline for the resumption of normal activities. Analysts note that front-end rate differentials are providing some support for the currency, observing that “front-end US/Canada spreads have held quite stable in the past few days, despite the elevated focus on US rate policy,” a backdrop they believe “should provide some anchoring for the CAD in the short run.”
However, the USD/CAD pair may rebound as the US Dollar gains support amid aggressive Federal Reserve rate-hike bets for Wednesday’s decision following hotter US inflation reports. Financial markets currently reflect an approximately 87% likelihood of a quarter-point rate increase at the Federal Reserve’s September meeting, a notable rise from the 59% probability observed just a week prior, as indicated by the CME FedWatch tool. The US Consumer Price Index accelerated in August, reinforcing expectations that the US central bank will raise interest rates next week. Data released by the Bureau of Labour Statistics on Friday indicated that the US CPI experienced a monthly increase of 0.4% in August, resulting in a year-over-year rise of 3.4%. Both readings aligned with market expectations. Meanwhile, the core CPI, which excludes volatile food and energy prices, increased by 0.3% on a monthly basis, compared to 0.2% previously, surpassing the forecast of 0.2%.
In the daily chart, USD/CAD is currently positioned at 1.3870. The pair remains constrained in the near term, with the 50-day Exponential Moving Average serving as a ceiling, while the price hovers just above the short-term nine-day EMA at 1.3842. The 14-day Relative Strength Index at 49 indicates neutral momentum following the recent recovery, suggesting a phase of consolidation beneath the medium-term trend line instead of a clear bullish breakout. For a more sustained advance, a daily close above the 50-day EMA at 1.3913 would be necessary to alleviate the prevailing bearish pressure. On the downside, immediate support is observed at the nine-day EMA at 1.3842. A decline below this level would intensify selling pressure and reveal additional weakness toward recent lows, maintaining USD/CAD’s vulnerability while it operates beneath its primary trend indicator.
