USD/CAD Price Analysis – Aug 27, 2024
Daily Price Outlook
During the early European hours on Tuesday, the USD/CAD currency pair failed to halt its downward trend and remained under pressure around 1.3466, hitting an intra-day low of 1.3463.
This decline in the USD/CAD pair could be attributed to the improving commodity-linked Canadian Dollar (CAD) amid rising crude oil prices.
On the other hand, the US Dollar initially saw modest gains but later turned bearish, possibly due to comments from key Federal Reserve (Fed) officials suggesting that interest rate cuts may be forthcoming.
Fed Chair Jerome Powell, speaking at Jackson Hole, hinted at potential policy adjustments and expressed confidence that inflation is nearing the Fed's 2% target.
Impact of Rising Oil Prices and US Interest Rate Expectations on USD/CAD
As we mentioned above, crude oil prices have surged due to concerns about potential supply disruptions. These fears are driven by the escalating conflict in the Middle East and the possible shutdown of Libyan oil fields.
Meanwhile, tensions remain high as Hamas rejected Israel's new conditions in ceasefire talks, insisting that Israel follow the terms set by US President Joe Biden and the UN Security Council.
Despite these worries, US Air Force General C.Q. Brown noted that fears of a broader conflict in the region have eased, with recent clashes between Israel and Hezbollah not escalating further.
Moreover, oil prices also gained support from growing expectations of US interest rate cuts. Such cuts could boost fuel demand by stimulating economic activity in the United States, the world's largest oil consumer.
Lower borrowing costs are likely to drive economic growth, increasing the need for oil and keeping prices elevated.
This news is likely to strengthen the Canadian Dollar (CAD) against the US Dollar (USD), pushing the USD/CAD pair lower. Rising oil prices benefit the CAD, while expectations of US interest rate cuts weaken the USD.
Potential US Interest Rate Cuts Weaken USD/CAD Pair
On the US front, the broad-based US Dollar failed to sustain its upward trend and turned bearish amid comments from Federal Reserve Chairman Jerome Powell.
Speaking at the Jackson Hole Symposium on Friday, Powell mentioned that "the time has come for policy to adjust," signaling a potential shift in interest rates. However, he did not provide specifics on when rate cuts would start or how large they might be.
In response, market expectations for a rate cut have grown. The CME FedWatch Tool shows that traders now fully anticipate at least a 25 basis point reduction by the Federal Reserve at its September meeting.
This indicates that investors believe the Fed will soon take action to support the economy, leading to a weaker US Dollar.
Therefore, this news is likely to weaken the US Dollar against the Canadian Dollar (CAD), leading to a decline in the USD/CAD pair.
The anticipation of US interest rate cuts reduces USD strength, while higher oil prices support the CAD.
USD/CAD - Technical Analysis
USD/CAD is currently trading at $1.34774, down 0.04% for the day, reflecting a mild bearish trend.
The pivot point to watch is $1.3516. If the pair continues to trade below this level, we could see further downside pressure, with immediate support at $1.3424.
Should this support break, the next levels to watch are $1.3360 and $1.3287, where additional buying interest may emerge.
The 50-day Exponential Moving Average (EMA) is sitting at $1.3612, which is above the current price and acts as a resistance level, reinforcing the bearish sentiment.
The Relative Strength Index (RSI) is at 23, indicating that the pair is in oversold territory. While this suggests that a rebound could be possible, the overall trend remains bearish as long as the price stays below the pivot point of $1.3516.
In conclusion, traders might consider selling below $1.35164, targeting a take profit around $1.34225, with a stop loss at $1.35731 to manage risk.
The immediate resistance levels to watch on the upside are $1.3574, $1.3633, and $1.3685. However, the bearish bias dominates unless the price breaks above these resistance levels.
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