USD/CAD Slides Near 1.38 as Oil Hits $60.70 and CPI Fuels Dollar Pullback
USD/CAD is hovering around $1.3879 during the US session and is struggling to gain momentum amid conflicting forces...
Quick overview
- USD/CAD is currently at $1.3879, facing pressure from mixed influences including US inflation data and rising oil prices.
- US inflation numbers showed a modest core CPI increase, leading to speculation about potential Federal Reserve rate easing.
- The Canadian dollar is benefiting from a surge in oil prices, which are influenced by geopolitical tensions in the Middle East.
- Technically, USD/CAD is in a neutral position, with key support at $1.3840 and potential buying opportunities if it breaks above $1.3920.
USD/CAD is hovering around $1.3879 during the US session and is struggling to gain momentum amid conflicting forces in the big picture. On the one hand, the US inflation numbers released today have taken a bit of the steam out of the dollar. On the other hand, rising oil prices are boosting the Canadian dollar and putting the pair under strain, even though it’s got a broad uptrend.
The December US inflation numbers met expectations with the core CPI rising by just 0.2% month over month while the annual core inflation rate held steady at 2.6%, down from its previous highs – it’s lowest in years. And that’s got some people thinking the Federal Reserve might actually have some wiggle room to ease up on rates later this year, which is weighing on the greenback.
But at the same time, there’s a lot of caution ahead of tomorrow’s US Retail sales numbers, which are forecast to come in at 0.4%, with the majority of that growth coming from auto demand. Until we get to see those numbers, no one’s really making any bold moves.
The Canadian Dollar Feeds off Oil Price Rally
Meanwhile, the Canadian dollar is getting a boost from the recent oil price surge, as WTI crude trades just off two-month highs around $60.70 a barrel. Oil prices jumped after President Trump put the brakes on talks with Iran amid ongoing protests, raising fears about Iran’s crude oil output of 3.3 million barrels a day.
Because of Canada’s energy exports, the Canadian dollar tends to do well when oil prices are high. And right now, that’s keeping a lid on any big rallies in USD/CAD, even though the overall risk sentiment is mixed. And as long as tensions in the Middle East keep rising and trade penalties loom for Iran-linked oil flows, crude prices will likely stay high, which will, in turn, keep the Canadian dollar strong.
USD/CAD Technicals Remain Bullish
From a technical standpoint, USD/CAD is stuck in a limbo right now. The 2-hour chart shows price still stuck inside that nice channel, but it’s now bouncing back towards the middle after a recent spike to $1.3920.
The recent candlesticks are a bit indecisive – the bodies are small, and the wicks are all over the place between $1.3870 and $1.3890. Former resistance at $1.3840- $1.3850 has now flipped to support, and that aligns with the 50-period moving average, which is going up. While the 200-period MA is down near $1.3790, that’s definitely still a medium-term positive sign.
Momentum is pretty much neutral at the moment, and the RSI is somewhere between 48 and 55, suggesting there’s no clear acceleration or exhaustion. If we do get a clean break above $1.3920, that opens up some new buying territory at $1.3965- $1.3990. But if we break below $1.3840, then we could be looking at a deeper pullback towards $1.3790.
What We’re Still Watching
So the key things to keep an eye on going forward are:
- US Retail sales tomorrow and the Feds reaction to it
- And the oil market’s reaction to any middle east developments
- And whether USD/CAD can hold onto that $1.3840 support level
Trade idea: Buy it when it dips to around $1.3850, with a stop-loss below $1.3790 and target $1.3965.
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