USD/CAD is currently rising, trading around 1.4030, with the potential to reach 1.4050. The pair shows signs of a bullish reversal in its upward trend, supported by a 14-day Relative Strength Index above 60. The main support level is the nine-day Exponential Moving Average at 1.4016. If the pair continues its upward trend, it could test the six-month high of 1.4079 and may even approach the upper limit of the channel at 1.4170.

Downward Pressure on USD/CAD

If USD/CAD fails to stay above 1.4016, it may face downward pressure targeting 1.3894, which is the 50-day EMA. Further declines could take the pair down to a three-month low of 1.3721. Recently, the Canadian Dollar showed weakness against the New Zealand Dollar. For instance, it saw a 0.10% drop in AUD/CAD. These statistics give insights into currency movements and help set trading expectations. The USD/CAD pair appears to be gaining strength, bouncing back around the 1.4030 level in a clear upward trend. The bullish momentum is reinforced by key indicators like the 14-day Relative Strength Index remaining above 60. The first significant support level to watch is the nine-day average at 1.4016. This upward move is partly due to softness in energy markets, which impacts Canada’s currency value. West Texas Intermediate (WTI) crude oil is struggling to maintain the $85 per barrel level, having dropped nearly 5% over the past month. This decline in a major Canadian export makes the US dollar more appealing.

Diverging Monetary Policy

We are also tracking diverging monetary policies. Recent data suggests the US Federal Reserve will be more aggressive than the Bank of Canada. Last month, US core inflation was at 3.6%, compared to Canada’s 2.9%, leading to speculations that the Fed will keep rates higher for longer. This difference in interest rates favors holding US dollars over Canadian dollars. For derivative traders, this technical situation hints at a strategy of buying call options with strike prices just above the six-month high of 1.4079. If there’s a successful break of that level—which briefly happened on October 14th—it could lead to movement towards 1.4170. Current implied volatility is manageable, meaning option premiums are not excessively high for this trade. However, the 1.4016 level is crucial for the short term. If it breaks and closes below this support, it could indicate fading bullish momentum and lead to a drop towards the 50-day average around 1.3900. Traders might use this level to take profits on long positions or to purchase put options for hedging. This sentiment is also seen in the broader market, where large speculators are betting on further weakness of the Canadian dollar. The latest Commitment of Traders report revealed that non-commercial futures contracts increased their net short positions on the CAD by over 12,000 contracts, indicating that institutional investors expect further declines. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now