USD/CAD Climbs as Oil Prices Weigh on Canadian Dollar

The USD/CAD exchange rate climbed to approximately 1.4280 during early European trading on Monday. This rise was driven by a decline in oil prices, which negatively impacted the Canadian Dollar (CAD) due to Canada's reliance on oil exports. Increased crude exports from the Middle East and oil releases by G7 nations added to global supplies, weighing on crude prices and, by extension, the Loonie.

However, recent weak US jobs data has significantly reduced market expectations of a Federal Reserve (Fed) rate hike in October. The US Non-Farm Payrolls (NFP) report showed only a 29K increase in September, far below the expected 90K. This shift has lowered the probability of a Fed rate hike this month to 22.1%, down from around 70% earlier in the week.

TD Securities noted a sharp repricing in Canadian rates, with the mid-curve under heavy pressure. They anticipate yields moderating by 10-15 basis points by year-end, emphasizing the importance of cross-market moves in positioning along the 10- to 50-year sector. Meanwhile, Federal Reserve official Logan's hawkish remarks have lifted Fed expectations, supporting the US Dollar (USD).

Technical analysis indicates that USD/CAD retains a bullish bias, with the pair pressing toward the upper Bollinger band. However, the Relative Strength Index (RSI) at 79.3 suggests an overbought condition, increasing the likelihood of a corrective pullback. Immediate resistance is seen at 1.4350, with key support levels at 1.4221 and 1.4000.