USD/CAD Outlook: CAD Strengthens Amid Rising Oil Prices
The USD/CAD outlook leans bearish with the Canadian dollar firm due to increased oil prices. However, the move was subdued as the dollar remained strong, with safe-haven inflows amid escalating Middle East tensions.
The Canadian dollar traded near a five-month high against the US dollar as oil prices rallied. Canada is a net exporter of oil, so increases in oil benefit the loonie. Notably, oil rallied on Monday as tensions between Israel and Lebanon intensified over the weekend.
Israel exchanged Missiles with Hezbollah, increasing fears of a broader war in the Middle East. Such an outcome could impact oil supply and tighten the market. Moreover, production cuts in Libya will likely reduce oil supply, further boosting prices.
At the same time, the Canadian dollar strengthened as Canadian railroad operators restored services, reducing the risks to the economy. The Canada Industrial Relations Board put an end to work pauses at two major railways that had caused a lot of disruptions
The CAD has remained strong since Friday, when Powell signaled a rate cut in September. Powell’s dovish tone weighed on the US dollar, allowing the loonie to climb. However, the US dollar was recovering by Monday as investors dumped risky assets due to the Middle East tensions.
The dollar is considered a haven in times of uncertainty, like fears of escalation in the Gaza war. Therefore, USD/CAD traders had to balance a strong Canadian dollar due to oil prices and a strong US dollar due to safe-haven demand.
USD/CAD key events today
- US CB consumer confidence
USD/CAD technical outlook: Bears rule under 1.3501 level
(Click on image to enlarge)
USD/CAD 4-hour chart
On the technical side, the USD/CAD price has broken below the 1.3501 support level, strengthening the bearish bias. Moreover, the price sits far below the 30-SMA with the RSI in the oversold region.
USD/CAD has maintained a solid bearish trend, with the price keeping below the 30-SMA. Furthermore, there is a high chance this trend will continue as the price keeps making lower lows. However, the RSI shows oversold conditions. Therefore, bulls might emerge to retest the 30-SMA before the downtrend continues. The next major psychological level is 1.3400.
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