- Oil prices fell as fears of supply disruptions eased.
- The pair got a boost from Friday’s upbeat US non-farm payrolls report.
- Traders estimate an 86% chance of a 50 bps Fed rate cut in November.
USD/CAD price analysis points to further upside for the pair as the Canadian dollar weakens amid falling oil prices. At the same time, the dollar strengthened as market participants reduced bets on a Fed rate cut.
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Oil prices fell on Tuesday as fears of supply disruptions eased after Iran attacked Israel. Markets have paused as they wait to see if Israel will strike back. Retaliation could mean attacks on Iranian oil that would tighten the market and raise prices. The oil withdrawal has weighed heavily on the Canadian dollar. As a result, the USD/CAD pair strengthened.
Moreover, the pair received a boost from Friday’s US non-farm payrolls report, which changed the outlook for a Fed rate cut. Before these numbers, markets were pricing in an over 30% chance of a 50 basis point rate cut in November. However, the data revealed an unexpected 254,000 new jobs in the US. Moreover, the unemployment rate decreased to 4.1%, indicating a resilient labor market. Consequently, market participants adjusted their rate cut bets, pricing in an 86% chance of a 50 basis point rate cut in November.
The shift from aggressive to gradual pace is bullish for the dollar, but only for a while. As long as borrowing costs keep falling, the dollar will suffer. All eyes are now on the upcoming US CPI report. Inflation has been constantly falling, and economists expect it to reach 2.3% in September. Policy makers are also more confident that inflation will reach the 2% target. Therefore, the report may not significantly change the outlook for a rate cut.
USD/CAD Key Events Today
There will be no significant reports from Canada or the US. Therefore, market participants will be watching the development of the Middle East war.
USD/CAD Technical Price Analysis: Limited Bullish Momentum
From the technical side, USD/CAD the price has maintained a sharp rally since breaking above and retesting the 30-SMA. It has since broken above several key resistance levels. Bulls are now targeting the resistance level of 1.3650.
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However, the RSI is currently in overbought territory, indicating a bullish high. Therefore, they may not be strong enough to break 1.3650 without a pullback first. A pullback would allow the pair to retest the 1.3600 or 30-SMA level.
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