USD/CAD Price Forecast: CAD Below 1.37 as $61 Oil Rally and Fed Uncertainty Shift Momentum
USD/CAD is under significant pressure in European trading and continues slipping towards $1.3680 after its latest attempt to break...
Quick overview
- USD/CAD is under pressure, slipping towards $1.3680 as the Canadian dollar strengthens due to rising oil prices.
- West Texas Intermediate crude has reached $61.10 a barrel, influenced by supply disruptions in Asia and declining Russian and Venezuelan exports.
- The US dollar is weakening ahead of a Federal Reserve decision, with speculation about a new chair potentially pursuing a more flexible monetary policy.
- Technical analysis shows USD/CAD nearing a critical support level at $1.3670, with bearish momentum suggesting a cautious outlook for traders.
USD/CAD is under significant pressure in European trading and continues slipping towards $1.3680 after its latest attempt to break through $1.38 once again falls flat. This downward pressure largely stems from the strengthening Canadian dollar, which is getting a boost from rising oil prices, while the US dollar begins to soften ahead of key Federal Reserve developments.
West Texas Intermediate crude has now hit $61.10 a barrel and is extending its gains for the second day in a row. This is partly due to supply disruptions in the fuel market, particularly in Asia. According to Reuters, Russian fuel oil shipments to Asia plummeted to about 1.2 million metric tons in January, marking a third month in a row of decline; just another factor adding to the story is that Venezuelan exports to China have dropped significantly following increased US enforcement actions. This amounts to further constriction of fuel supply.
When it comes to Canada, higher oil prices typically have a positive impact on the Canadian dollar, and because Canada is one of the largest exporters of crude to the US, improved energy terms are a significant boost to the CAD and put even more pressure on USD/CAD when commodity-related price hikes come around.
The US Dollar Continues to Weaken Ahead of the Fed Decision
Meanwhile, on the US side, the US dollar is still struggling. The US Dollar Index (DXY) has now dipped to around 97.10, hammered by speculation that the White House will reveal the identity of the next Federal Reserve Chair this week. Investors fear that the new Fed Chair will pursue a more flexible monetary policy, which naturally puts the dollar under greater pressure.
As everyone waits to hear the outcome of the Federal Reserve meeting on Wednesday, while all the signs are that interest rates will remain steady at 3.50%–3.75%, as the CME FedWatch tool would suggest, uncertainty about forward guidance is still casting a cloud of doubt and holding down demand for the dollar.
USD/CAD Price Forecast: Loonie Hits Key Technical Support
Now, looking at the technicals, USD/CAD is trading close to $1.3700 after another failed attempt to push above the $1.3830–$1.3850 resistance zone. On a 4-hour chart, price has now broken below a short-term descending trend channel with fairly bearish candlesticks tearing through the 0.382 and 0.236 Fibonacci retracement levels.
The pair is now reaching the $1.3670 area where a long-term trendline is converging with the 0% Fibonacci retracement. This area has previously been a safe haven for buyers looking to come in and protect their positions. A decisive breakthrough here would expose the $1.3640 level, then $1.3610. Note that the former resistance level at $1.3750–$1.3780 is now supporting the trade.
Momentum still looks pretty soft, with RSI around 28–30, indicating we’re heading into an increasingly oversold situation, but not really convinced there’s enough data to suggest we’re in the clear just yet.
What Traders Are Paying Close Attention To
- How long will oil stay above $60 to keep CAD strong
- How the Federal Reserve talks about Fed leadership and anything else they might have to say
- Price action at the $1.3670 trendline when it comes to deciding the next move for USD/CAD.
Unless USD/CAD stabilises above $1.37, the overall sentiment is that you’re still better off selling rallies and not looking to buy the dip.
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