USD/CAD Price Analysis – Aug 13, 2024
Daily Price Outlook
During the European trading session, the USD/CAD currency pair continued its downward trend, trading around the 1.3735 level and reaching an intra-day low of 1.3727.
This bearish movement is due to the weakening US dollar, which has been pressured by market expectations of potential Federal Reserve interest rate cuts.
On the other hand, the decline in crude oil prices is putting downward pressure on the commodity-linked Canadian dollar, which is somewhat mitigating the overall decline of the USD/CAD pair.
US Dollar Weakness and Fed Rate Cut Expectations Impact USD/CAD
On the US front, the broad-based US dollar has continued to weaken, driven by the dovish stance of the Federal Reserve. This decline is largely due to market expectations of a potential 50 basis point interest rate cut by the Fed in September.
Meanwhile, the upcoming US inflation data, including the Producer Price Index (PPI) on Tuesday and the Consumer Price Index (CPI) on Wednesday, are expected to show cooling inflation for July.
This could further support the Fed's potential easing of policy, contributing to the ongoing bearish trend in the dollar.
Therefore, the US dollar's ongoing weakness, driven by expectations of a 50 basis point rate cut and cooling inflation data, is putting downward pressure on the USD/CAD pair. This trend is exacerbated by the dovish Federal Reserve stance.
Impact of Falling Oil Prices and Bank of Canada Rate Cuts on the USD/CAD Pair
On the CAD front, the upticks in the USD/CAD pair might gain traction due to falling crude oil prices, which impact the Canadian dollar, a commodity-linked currency.
Canada’s largest export is crude oil, and the recent drop in West Texas Intermediate (WTI) oil prices to around $75.40 per barrel poses challenges for the CAD.
This decline is due to concerns about weaker demand and OPEC's reduced 2024 growth forecast for China, which continues to pressure the CAD.
Meanwhile, the Bank of Canada (BoC) is expected to cut interest rates by 25 basis points at both the September and October meetings, which could further weaken the Canadian dollar.
The combination of lower oil prices and potential rate cuts could fuel the CAD's strength, influencing the USD/CAD pair's movements.
USD/CAD - Technical Analysis
The USD/CAD pair is currently trading at $1.37326, down 0.02% on the 4-hour chart, showing a slight decline as it hovers just below the pivot point at $1.3748.
This level is crucial as it represents a potential turning point for the pair. If USD/CAD fails to break above this pivot, we might see further bearish movement.
The immediate resistance is at $1.3789, aligned with the 50-day Exponential Moving Average (EMA) at $1.3788. This area is a key resistance zone; a break above it could shift the momentum back to the bulls.
However, if the pair continues to trade below this resistance, the bearish outlook remains strong.
The next resistance levels are at $1.3841 and $1.3890, but these will only come into play if the pair manages to climb above $1.3789.
On the downside, immediate support is found at $1.3688, with further support levels at $1.3645 and $1.3603.
The Relative Strength Index (RSI) is at 41, suggesting there’s room for more downside before the pair becomes oversold.
Given the current technical setup, selling below $1.37475 with a target of $1.3688 and a stop loss at $1.37834 seems to be a sound strategy.
The market's inability to clear the 50-day EMA indicates that sellers are likely to maintain control in the short term.
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