Oil Rally Driving CAD Higher

The Canadian Dollar has quickly become one of the best performers across the G10FX space in recent weeks. The rebound in oil prices has been a major driver of the shift higher in CAD. With oil prices rallying almost 50% of the year’s lows, trading from YTD lows in May of around $63 to YTD highs in September of roughly $93, the shift has fuelled a wave of bullish sentiment for CAD. Given the heavy reliance of the Canadian economy on oil, its primary export, the uptick in prices is a solid boost for the Canadian trade account.

Hawkish Hold from the BOC

Alongside the uptick in oil prices, we’ve also heard the Bank of Canada warning that further rate hikes might still be seen this year. As with the Fed, at its last meeting the BOC held rates steady though warned that upward inflationary pressures remained and might still warrant a further increase from the BOC this year. Against the more dovish tone we heard from the ECB this month, EURCAD has fallen sharply and is now sitting on a major support level. Given the divergence in market expectations linked to the two banks, risks remain tilted firmly lower here.

EURCAD

(Click on image to enlarge)

The sell off in the pair has seen the market breaking down below the rising trend line and below several key support levels. Price is now testing the 1.4240 level, the potential neckline of a large head and shoulders pattern. If broken, this will open the way for a much deeper move down towards 1.3766, in line with bearish momentum studies. 

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