CAD: Despite rising oil prices and modest USD weakness, USD/CAD remains depressed near the mid-1.3700s.

Oct 3, 2022
VOT Research Desk

Key Insights and Analysis

On Monday, there is some selling around USD/CAD due to a combination of factors.

The CAD is supported and under pressure by rising oil prices in the face of a weaker USD.

A positive risk tone and falling US bond yields appear to be weighing on the dollar.

The USD/CAD pair begins the week on a negative note and loses some of Friday’s substantial gains to reach its highest level since May 2020.Throughout the early European session, the pair has maintained its offered tone and is currently trading around 1.3755, just a few pips above the daily low.

Crude oil prices reach a one-week high following reports that OPEC+ will consider an output cut of 1.5 million barrels per day (or more), the largest since the COVID-19 pandemic. As a result, the commodity-linked CAD is supported and the USD/CAD pair is under pressure to fall amid a softer tone regarding US Treasury bond yields.

In point of fact, a number of factors are exerting pressure on the USD Index, which measures the performance of the dollar against a basket of currencies. It is currently hovering close to a one-week low that was reached on Friday. The safe-haven buck is being weighed down by the US Treasury bond yields’ further decline from a multi-year high reached last week.

However, the expectation of a more aggressive policy tightening and the Federal Reserve’s commitment to controlling inflation should support the dollar. The markets have been pricing in the possibility of another huge Fed rate hike in November, this time by 75 basis points. The USD bulls benefit from this, in turn.

Additionally, investors continue to be concerned that a more prolonged global economic downturn will reduce fuel demand. This may limit any significant upward movement in crude oil prices. The fundamental circumstances support the possibility of fresh buying at lower levels and point to the upside as the path of least resistance for the USD/CAD pair.

Market participants are now focusing on the US economic docket, which includes the ISM Manufacturing PMI, which is scheduled to be released later in the early North American session. The demand for USD will be driven by this, as well as by the yields on US bonds and the general attitude toward risk. In addition, traders will seek out short-term opportunities in the USD/CAD pair by taking cues from the dynamics of the oil price.

Technical Analytics