Canadian Dollar Slumps Near 18-Month Low on Oil Price Decline

The Canadian Dollar (CAD) weakened to near 18-month lows on Tuesday, as declining oil prices put pressure on the commodity-linked currency. The USD/CAD pair rose to around 1.4270 during European trading hours, extending its gains for the third straight day. Crude oil prices fell as Middle East crude exports recovered to nearly pre-war levels, with shipments reaching 17.5 million barrels per day, or 98% of previous volumes. Refined product flows also rebounded, further easing supply concerns.

Saudi Arabia's decision to cut official selling prices for its flagship crude grade to Asian buyers signaled increasing oil supply and a loosening global market. Kuwait reported that its oil production has returned to about 75% of pre-conflict levels, while Iraq is seeking additional vessels to transport its cargoes through the Strait of Hormuz. These developments have contributed to the downward pressure on oil prices, negatively impacting the CAD.

The USD/CAD pair's upside may be limited, however, as the US Dollar faces challenges due to softer US employment data. This has reduced expectations for a Federal Reserve interest rate hike in October, with traders now pricing in a more than 78% probability of rates remaining unchanged. The drop in oil prices has also eased inflation concerns, reducing pressure for monetary policy tightening.

Technical analysis indicates that USD/CAD is trading at 1.4270 with a bullish near-term bias, supported by moving averages. The 14-day Relative Strength Index (RSI) suggests overbought conditions, while the FXS Fed Sentiment Index remains elevated. The next significant resistance level is at 1.4794, with initial support seen at 1.4202 and deeper structural support near 1.4022.