USD/CAD Price Analysis – Sep 03, 2024
Daily Price Outlook
During the European trading session, the USD/CAD currency pair continued its upward trend for the second consecutive day, trading around 1.3534 and reaching an intraday high of 1.3550. This gain is largely due to the strengthened US Dollar, driven by reduced expectations of an aggressive interest rate cut by the US Federal Reserve in September.
However, the Canadian Dollar's decline may be capped by rising crude oil prices. West Texas Intermediate (WTI) oil has surged to approximately $73.60 per barrel, supported by concerns over potential supply disruptions in Libya.
US Dollar Strengthens Amid Mixed Economic Indicators and Fed Rate Cut Expectations
On the US front, the USD/CAD currency pair has risen due to a stronger US Dollar, fueled by reduced expectations of a major interest rate cut by the Federal Reserve in September. While US Treasury yields are climbing and supporting the Dollar, its gains could be limited by growing anticipation of a quarter-point rate cut.
The CME FedWatch Tool indicates a nearly 70% probability of at least a 25 basis point reduction in the Fed's September meeting. The core PCE price index, excluding food and energy, increased by 2.6%, matching previous data but falling short of the 2.7% forecast.
Additionally, the US GDP grew at a 3.0% annualized rate in Q2, exceeding the 2.8% expectation, and Initial Jobless Claims dropped to 231,000, slightly below the 232,000 forecast.
Looking ahead, markets are pricing in a nearly 69% chance of a 25 basis point rate cut in September, with a 31% probability of a 50 basis point reduction.
Upcoming data includes the US ISM Manufacturing PMI for August, expected to rise to 47.5 from 46.8, while the Services PMI may decrease to 51.1 from 51.4. Job additions for August are projected at 163,000, with the Unemployment Rate likely to edge down to 4.2%.
Rising Oil Prices and Bank of Canada Rate Cut Create Mixed Impact on CAD
On the other hand, the decline in the commodity-linked Canadian Dollar (CAD) is likely to be limited by rising crude oil prices. West Texas Intermediate (WTI) oil has surged to around $73.60 per barrel, driven by concerns over potential supply disruptions in Libya. Key oil ports in Libya have halted exports, and nationwide production has been reduced, according to Reuters.
Additionally, the upcoming Bank of Canada (BoC) interest rate decision on Wednesday will be closely watched. The BoC is expected to cut interest rates for the third time this year, with a projected reduction of a quarter percentage point to 4.25%.
Investors also anticipate further rate cuts throughout the rest of the year and into 2025. This potential rate cut could impact the Canadian Dollar's performance, as the central bank's actions are closely tied to economic conditions and currency values.
The rising crude oil prices and anticipated Bank of Canada rate cut could support the CAD, potentially limiting the USD/CAD pair's gains. While oil prices bolster the CAD, the BoC's rate cut may weaken it, creating mixed effects on USD/CAD.
USD/CAD - Technical Analysis
The USD/CAD pair is currently trading around $1.3525, showing signs of a potential bullish reversal after a period of decline. The pair has recently broken above the 50-day EMA, which is now acting as immediate support around $1.3502, suggesting a shift in momentum. The current price action indicates that if the pair maintains this level, it could extend gains towards higher resistance levels.
Key resistance levels to watch include $1.3549, which aligns with the 61.8% Fibonacci retracement level, followed by $1.3577 and $1.3614. These levels represent critical barriers where selling pressure could re-emerge. On the downside, immediate support lies at $1.3502 (pivot point), with further support levels at $1.3482 and $1.3447.
Technical indicators are favoring a continuation of the bullish trend. The RSI is currently at 60.80, reflecting the increasing buying momentum as the pair approaches overbought territory. The 50-day EMA at $1.3502 provides a critical support zone, and a close above this level would further validate the bullish outlook.
Given the recent breakout above key levels, a buy position above $1.3507 could be considered, targeting $1.3561 with a stop loss at $1.3470 to manage potential downside risk.
The overall sentiment is cautiously optimistic, with the potential for further gains if the pair sustains above the $1.3502 pivot point.
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