Photo by Michelle Spollen on Unsplash

The USD/CAD slumped last week as the Canadian dollar gained renewed strength amid rising oil prices and a surprisingly upbeat November jobs report. Meanwhile, the US dollar came under pressure from intensifying expectations of a Fed rate cut.

What happened last week

On Friday, the official Canada employment data showed 53,600 new jobs in November, while the unemployment rate dropped to 6.5%, well below expectations. The strong figures renewed confidence that the Bank of Canada is in pause mode at least if not completely done with the easing.

At the same time, oil prices, being a key driver of CAD, ticked higher as global energy markets remained firm, adding further support to the loonie. The USD/CAD prices reached below 1.3900, the weakest level in around two months.

From the US, the growing conviction that the Fed will cut rates next week has weakened the dollar. Following the recent mixed signals on inflation and labor, markets now price in a 90% probability of a 25-basis-point rate cut. This continues to weigh on the greenback broadly.

What could happen next week?

The three major scenarios persist for the next week:

• If oil prices stay firm and Canada’s economic momentum holds, the USD/CAD could face further downside pressure, especially if US data remains negative.
• If the US jobs data comes upbeat while the Fed maintains a hawkish tone, the pair could face upward pressure towards 1.4000 and above.
• If the US data remains mixed while the BoC leaves a neutral tone, the price could stay in a familiar range near 1.3900.

Major USD/CAD Events to Watch Next Week

The key events ahead include:

• Bank of Canada Overnight Rate
• Bank of Canada Press Statement
• US JOLTs Job Openings
• US Weekly ADP Employment
• FOMC Rate Decision
• Fed Chair Press Conference
• US Employment Cost Index
• US Jobless Claims

The Fed Chair’s statement remains pivotal, as the markets have already priced in the rate cut decision.

USD/CAD Weekly Technical Forecast: Bearish Below 200-DMA

(Click on image to enlarge)

USD/CAD daily chart

The USD/CAD daily chart shows Friday’s candle piercing below the 100-day and 200-day MAs near 1.3900, while the 20-day and 50-day MAs are going to form a bearish crossover. However, the daily RSI is approaching the oversold region, suggesting a potential consolidation before downside continuation.

On the other hand, moving back above the 1.3900 level could gather buying traction and move to 1.3950, ahead of 1.4000. However, the path of least resistance lies on the downside.

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