USD/CAD may appreciate in response to increasing expectations of a December Federal Reserve rate hike, bolstered by robust employment figures. Market participants are closely monitoring the impending US Consumer Price Index and Producer Price Index reports for additional indications regarding central bank policy direction. Tumbling crude oil prices persist in exerting pressure on the commodity-linked Canadian dollar. USD/CAD experiences a decline following two consecutive days of appreciation, currently trading near 1.4110 during the Asian trading session on Monday. However, downside momentum could be restrained as the US Dollar may regain ground. This potential strength is underpinned by increasing probabilities of a December Federal Reserve rate hike following robust US labour data. Investors are currently paying close attention to the US Consumer Price Index report scheduled for Tuesday and the Producer Price Index set for Friday, seeking additional insights into the Federal Reserve’s forthcoming policy decisions.
According to the CME FedWatch tool, the likelihood of an additional 25-basis-point rate increase at the upcoming December Federal Open Market Committee meeting has risen to over 78%. Strong US employment data is offering considerable backing for the dollar. In October, Nonfarm Payrolls rose by 165,000, significantly surpassing the market consensus of 65,000 and enhancing September’s revised figure of 60,000. Concurrently, the Unemployment Rate decreased to 4.1%, outperforming the anticipated rate of 4.2%. Additionally, the USD/CAD pair may encounter support as the commodity-linked Canadian Dollar experiences downward pressure from declining oil prices. Crude prices experienced a decline following remarks from US President Donald Trump, who indicated that additional military strikes on Iran are “highly unlikely,” contingent upon ongoing advancements in Iran’s nuclear program and the continued openness of the Strait of Hormuz.
Trump also noted that the unpopular Middle East conflict, which elevated energy costs, contributed to the Republicans’ recent midterm election losses. In an interview, Trump reiterated that further military action would probably be unwarranted should Iran enter into a solid agreement. Despite earlier indications of a potential resumption of significant military operations following the midterms, there have been no large-scale actions undertaken by the US military. Meanwhile, Iran has issued a warning that it will respond to any future strikes by targeting assets belonging to the US and Israel. In the daily chart, USD/CAD is currently positioned at 1.4110. The pair maintains its position above both the 50- and nine-day Exponential Moving Averages, indicating a favourable near-term outlook as the price continues to rebound from recent lows.
The 14-day Relative Strength Index at 55.3 has moderated from previous overbought levels yet continues to reside in neutral-to-positive territory, suggesting that bullish momentum persists without reaching excessive levels. On the downside, initial support is situated at the 50-day EMA at 1.4054, closely followed by the nine-day EMA at 1.4047, creating a compact demand cluster that sustains the short-term trend as long as it remains intact. In the absence of distinct resistance levels within the dataset, traders are expected to keep an eye on psychological thresholds and recent swing highs exceeding 1.4111 for indications of market fatigue. Conversely, a daily close beneath the EMA cluster would challenge the prevailing bullish sentiment and suggest the onset of a more pronounced corrective phase.
