Canadian Dollar Weakens as Oil Prices Drop and Fed Hawks Rise
The Canadian Dollar (CAD) weakened against the US Dollar (USD) on Tuesday, with the USD/CAD pair rising near 1.4275 in early European trading. The decline in crude oil prices weighed heavily on the commodity-linked CAD, as lower oil prices typically hurt Canada’s oil-dependent economy.
The Group of Seven (G7) nations announced plans to release 100 million barrels of diesel and crude from emergency reserves, adding to global supply and further pressuring oil prices. This move, along with softening bets on a Federal Reserve (Fed) rate hike in October, contributed to the CAD’s decline.
Strategists at Brown Brothers Harriman (BBH) highlighted that Canada’s upcoming September labor force survey is expected to show weak job growth, with only 5,000 jobs added after a loss of 41,700 in August. The unemployment rate is projected to rise to 6.5%, signaling softer labor demand. BBH argues that the Bank of Canada’s (BoC) aggressive rate hike expectations (100 basis points in the next twelve months) may be overly optimistic, leaving the CAD vulnerable to a dovish repricing.
On the Fed side, a hawkish speech by Fed’s Logan boosted expectations for higher interest rates, supporting the US Dollar. The FXS Fed Sentiment Index rose to 136.59, indicating stronger market confidence in further rate hikes. Meanwhile, technical analysis suggests USD/CAD remains bullish but overbought, with key support levels identified at 1.4070 and 1.4005.