Going Long on USD/CAD as the Retreat Stops at the 100 SMA
USD/CAD has been on a bullish trend for nearly two months, consistently making higher highs, with the pair reaching a level of 1.3695 toward the end of the week. This upward momentum is somewhat surprising given the usual relationship between crude Oil prices and the Canadian dollar (CAD).
Traditionally, when crude oil prices rise, it tends to benefit the Canadian dollar because Canada is a major exporter of Oil. However, in this particular case, the CAD has been weakening against the USD despite bullish Oil prices which are a result of production cuts implemented by Saudi Arabia in cooperation with the OPEC+ group. These production cuts can lead to reduced supply, thus higher Oil prices but may not necessarily result in a stronger CAD if other economic factors are at play.
Another significant factor contributing to the bullish trend in USD/CAD has been the weakening Canadian economy. However, it’s worth noting that last week, some positive economic data emerged from Canada. Last lower, trading near the 1.3570-80 level.
Although the market’s skepticism about the Bank of Canada’s ability to implement further tightening of monetary policy should keep this pair bullish. In contrast, the Federal Reserve’s normalization cycle in the United States is expected to have more influence on USD/CAD in the near term. While the Federal Open Market Committee (FOMC) has indicated a cautious approach to tightening, this stance could change if U.S. price pressures, such as inflation, remain elevated.
Elevated inflation could prompt the FED to keep the rhetoric open for further hikes in November despite not hiking in September, potentially affecting the USD/CAD exchange rate. So, we decided to open a buy USD/CAD signal a while ago, since the larger trend is quite bullish and this retrace seems complete already, with the stochastic indicator being oversold on the H4 chart as well.
USD/CAD Live Chart
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