Canadian Dollar Weakens as Oil Prices Drop and Fed Hike Expectations Fade

The Canadian Dollar (CAD) has weakened to near 18-month lows as oil prices decline, pushing the USD/CAD pair up to around 1.4270 during European trading hours on Tuesday. The CAD, closely tied to commodity prices, is struggling amid falling crude oil prices. Reports indicate that Middle East crude exports are rebounding, with shipments reaching 17.5 million barrels per day, about 98% of pre-war levels, while refined product flows have also partially recovered.

Kuwait and other Gulf producers have restored significant portions of their oil production, easing supply constraints. Saudi Arabia has cut official selling prices for its flagship crude grade to Asian buyers, signaling growing oil availability and a looser global market. These factors have contributed to the drop in oil prices, which has negatively impacted the CAD.

However, the upward momentum of the USD/CAD pair may be limited as the US Dollar faces challenges due to softer employment data. This has reduced expectations of a Federal Reserve interest rate hike in October, with traders now pricing in a more than 78% probability that rates will remain unchanged. Lower oil prices have also eased inflation concerns, further dampening pressure for monetary policy tightening.

Technical analysis shows the USD/CAD trading at 1.4270, with a bullish near-term bias as it holds above key moving averages. The 14-day Relative Strength Index (RSI) at 78.96 suggests overbought conditions, but strong upside momentum persists. The next significant resistance is at 1.4794, while initial support is at the nine-period EMA near 1.4202.