USD/CAD Climbs as Oil Slump and Rate Bets Weigh on Loonie
The USD/CAD exchange rate is trading near 1.4275 during early European trading on Tuesday, driven by weakness in the Canadian Dollar. The Loonie is under pressure due to lower oil prices, which impact Canada as a major oil exporter. The G7’s decision to release 100 million barrels from emergency reserves has increased supply, weighing on crude prices and undermining the oil-linked CAD.
On the US side, expectations for a Federal Reserve rate hike in October have eased, with market-implied odds standing at around 22.7%. This follows a weaker-than-expected US labor market report, which showed Nonfarm Payrolls rising by only 29K in September, significantly lower than previous months. Meanwhile, Fed official Logan’s hawkish remarks have supported the Dollar, emphasizing the need for higher interest rates to combat inflation.
Analysts at Brown Brothers Harriman warn that aggressive expectations for Bank of Canada (BoC) rate hikes leave the CAD vulnerable. They predict Canada’s September labor data, due on Friday, will show weak job growth and rising unemployment, signaling persistent softness in the labor market. The firm argues that current BoC rate hike pricing, which anticipates 100 basis points of increases in the next year, may be too aggressive and could lead to further CAD weakness if expectations are adjusted lower.
From a technical perspective, USD/CAD remains bullish, trading above key moving averages. However, overbought conditions, as indicated by the 14-day Relative Strength Index at 78.8, suggest a potential pause or correction in the near term. Immediate resistance is seen at 1.4365, while support lies around 1.4070 and 1.4005.