USD to CAD Prices Forecast: Loonie Rises as Oil Surges and U.S. Yields Dip

Highlights

• Crude oil’s resurgence pulls USD to CAD rate lower, giving the Loonie a boost.
• Russia’s unexpected export ban rattles the global oil supply chain, pushing prices up.
• U.S. Treasury yields dip slightly, reflecting investor sentiment post Federal Reserve talks.

Oil Prices Surge Amidst Russian Export Ban

The USD to CAD rate witnessed a decrease as crude oil prices underwent a rebound. The Canadian Dollar, being directly linked to commodities, was positively impacted by this rise.

This surge was notably due to Russia’s abrupt decision to halt gasoline and diesel exports to various nations, excluding four former Soviet states. Consequently, the global supply chain for these fuels faces immediate pressure, causing heating oil futures to soar by almost 5%.

U.S. Economic Indicators

U.S. Treasury yields revealed a slight drop as investors anticipate the possible economic landscape and the impending course of interest rates after the Federal Reserve’s recent policy discussions.

Interestingly, the 10-year Treasury declined marginally to 4.4783%, and the 2-year Treasury settled at 5.1356%. Both are a tad below the peak levels observed in 2007 and 2006.

Additionally, jobless claims reported on Thursday were less than predicted at 201,000. This might be a cue for the market, suggesting further hikes in interest rates to stabilize the growing economy, particularly the employment sector.

Federal Reserve’s Hawkish Stand

Despite holding the interest rates steady for the time being, the Federal Reserve has displayed a strong inclination towards a rate hike by year’s end. An increase up to a range of 5.50 to 5.75% is anticipated. Fed Chairman, Jerome Powell, emphasized ongoing inflationary worries, noting that despite some indications of inflation moderating, considerable advancements are yet to be made.

Potential U.S. Government Shutdown

The threat of a potential U.S. government shutdown loomed as House Republican leaders adjourned the session on Thursday. This sparked fears of the Congress failing to pass the required bill for funding the government.

A possible shutdown carries not just the risk of reduced confidence in the government’s operational capabilities but also a potential dip in the fourth quarter’s gross domestic product (GDP). Such an event could further hinder the Fed’s decision-making due to restricted access to crucial economic data.

Short-term Forecast

Considering the strengthening of oil prices, coupled with economic indicators and potential policy changes, a bearish short-term outlook for the USD to CAD pair is projected.

Technical Analysis

The USD to CAD 4-hour price currently stands at 1.3460, marginally below the previous 4-hour price of 1.3462. This price is slightly below both the 200-4H and 50-4H moving averages, which are at 1.3534 and 1.3499 respectively, indicating a potential bearish sentiment in the short term. The 14-4H RSI reading of 44.63 suggests weakened momentum but isn’t in the oversold territory.

The pair is trading near the main resistance area between 1.3483 and 1.3508 but is holding above the main support region of 1.3412 to 1.3372. Taking all these factors into consideration, the current market sentiment leans bearish for USD to CAD.