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USD to CAD Prices Forecast: Loonie Rides High on Oil Amidst Fed Uncertainties

By:
James Hyerczyk
Published: Sep 18, 2023, 07:35 GMT+00:00

As the U.S. Federal Reserve's policy looms, rising crude oil prices are bolstering the Canadian Dollar's standing, pressuring the USD to CAD.

USD to CAD

In this article:

Highlights

  • Traders eye the Federal Reserve’s policy meeting as USD/CAD faces turbulence.
  • Rising crude oil prices fortify the Canadian Dollar amid global currency dynamics.
  • The loonie gains momentum, thanks to bullish oil trends and Saudi production cuts.
  • The near-term USD/CAD outlook skews bearish, with the Fed and oil prices as pivotal factors.

USD to CAD Dynamics amidst Fed Speculations

The USD to CAD Forex pair is navigating choppy waters as traders keenly await the U.S. Federal Reserve’s upcoming policy meeting. While the Fed’s decision on interest rates holds sway over the USD, rising crude oil prices are boosting the Canadian Dollar, setting the stage for a fascinating currency tug-of-war.

At 07:20 GMT, the USD to CAD is trading 1.3501, down 0.0026 or -0.19%.

Crude Oil Rise Influencing the Loonie

The Canadian dollar, also known as the loonie, is on a bullish track against its U.S. counterpart and other G10 currencies. This strength emanates from robust investor sentiment and escalating crude oil prices, which recently hit an annual high. The tightening oil supply, spurred by Saudi Arabian production cuts and a favorable demand outlook in China, has allowed the loonie to rebound from its oversold status. Brent crude’s recent surge to a 10-month high above $93 a barrel adds credence to this trend.

Crucial Economic Indicators

On the home front, Canada’s economic indicators paint a mixed picture. While wholesale trade recorded a modest 0.2% growth in July, it fell short of expectations. Yet, the automotive sector remains a bright spot. Moreover, economists project Canada’s inflation to rise to an annual rate of 3.8% in August, up from 3.3% in July. Stateside, U.S. retail sales data has reduced recession fears, suggesting that the Fed might maintain higher interest rates to curb inflation.

Bond Yields and Rate Expectations

Canadian bond yields are trailing their U.S. counterparts, with the 2-year yield showing a gap of 30 basis points below the U.S. rate. In contrast, U.S. Treasury yields, particularly the 10-year, are climbing, driven partly by expectations that the Fed will hold its ground on interest rates. Futures pricing indicates just a 3% chance of a rate hike from the Fed, keeping traders on their toes.

Short-Term Forecast: Leaning Bearish

Given the Fed’s likely unchanged stance and the bullish momentum in crude oil prices, the short-term outlook for USD/CAD tilts bearish. Investors should keep a close eye on the Fed’s policy decisions and crude oil dynamics, as both will be pivotal in shaping the loonie’s trajectory against the U.S. dollar in the near term.

Technical Analysis

4-Hour USD to CAD

The currency pair recently traded at 1.3497, slightly below its previous 4-hour price of 1.3511. It’s trading below both the 200-4H moving average of 1.3520 and the 50-4H moving average of 1.3583, suggesting a short-term bearish momentum. The 14-4H RSI reads 35.87, nearing the oversold territory, indicating the potential for weakened bullish momentum.

The price is also hovering inside the main support area, ranging between 1.3508 to 1.3483. There’s a distinct resistance above at 1.3612 to 1.3654. Given these factors, the current market sentiment leans bearish for the USD to CAD pair on a 4-hour timeframe.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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