USD/CAD Daily Forecast – Canadian Dollar Under Pressure From The Sell-Off In Commodities

The Canadian dollar has found itself under pressure during another tough day for commodities. The U.S. Federal Reserve cut rates to 0% – 0.25% which is theoretically bearish for the U.S. dollar. However, the downside in commodities is putting material pressure on the Canadian dollar together with other similar currencies like the Australian dollar.

Coronavirus-related measures are being implemented at an increased scale around the world so the situation for commodities remains challenging. In addition, the Canadian oil continues to trade at a major discount to leading benchmarks like WTI or Brent, which puts the Canadian economy into a difficult environment. This discount is not going away anytime soon so Canadian oil producers face tough times as they unwillingly participate in the battle for market share between Russia, Saudi Arabia, and the U.S.

At this point, the USD/CAD is a one way street as traders continue to bet on increased problems for the Canadian economy. While the U.S. faces fundamental problems of its own due to coronavirus, the U.S. dollar enjoys the safe heaven status which is especially visible when it trades against the commodity-related currencies like the Canadian dollar.

The current fundamental situation is not favorable for the Canadian dollar, and a material improvement in world’s growth outlook and the corresponding improvement in prospects for commodities are required to boost the fundamental outlook for the currency.

Technical Analysis

USD/CAD continues its decisive upside move and looks ready to settle above 1.4000. Should this happen, the pair will have a clear path to the test of 2018 highs at 1.4135.

As a reminder, the 2018 highs for the dollar were set when the general market and oil experienced a major downside move in late 2018. Back then, S&P 500 briefly dipped below 2400 points, while oil visited the sub-$50 territory.

The situation is more challenging right now since oil tries to find support at the $30 level so additional pressure on the Canadian dollar will not be a major surprise.

During the similar oil price setup, when oil was roughly at the same levels as now at the end of 2015 – beginning of 2016, USD/CAD almost reached 1.4700. While the pair will likely meet increased selling pressure as it moves higher to the 2018 highs and especially if it moves closer to 2016 highs, the current setup remains favorable for the U.S. dollar.