The Canadian Dollar is currently weak compared to the US Dollar, showing little sign of recovery. Recent data from the Canadian Ivey Purchasing Managers Index (PMI) for October revealed a larger decline in business confidence than expected, highlighting ongoing economic difficulties. Over the past six trading days, the Loonie has fallen by 1.81% against the US Dollar. The Ivey PMI fell to 52.4, dropping more than the anticipated decrease from 59.8 to 55.2. In the US, job cuts have been significant, with 153K jobs lost in October, one of the largest declines outside of the Covid period.

USD/CAD Momentum

The USD/CAD currency pair continues to rise, closing near 1.4120 after bouncing back from the 200-day Exponential Moving Average at 1.3900. The pair is currently overbought, facing resistance at 1.4150 and having support levels around 1.4000 and 1.3900. The daily Relative Strength Index (RSI) is near 70, leading traders to watch if USD/CAD can stay above 1.41. The Canadian Dollar’s value is affected by various factors, including the Bank of Canada’s interest rates, oil prices, and overall economic data. The health of Canada’s economy, oil price changes, and inflation all play significant roles. Additionally, the US economy’s performance impacts the CAD considerably. Given the current weakness in the Canadian dollar, it’s likely that the USD/CAD pair will remain above 1.4100. This trend follows disappointing Canadian PMI results and September’s inflation figure of 2.9%, leaving the Bank of Canada with little incentive to adopt a stronger stance. With signs of slowing in the Canadian economy, the outlook for the Loonie seems bearish. A significant factor is the price of oil, which is putting additional pressure on the Canadian dollar. Western Canadian Select prices have dropped over 8% in the past month, trading near $68 a barrel due to lower global demand expectations. This decline in Canada’s top export is negatively affecting the currency’s strength, and we expect this trend to persist as long as oil prices remain low.

Impact of US Factors

Conversely, the ongoing US government shutdown, now entering its 42nd day, is causing considerable uncertainty by delaying crucial economic data like Non-Farm Payrolls. This uncertainty has inadvertently strengthened the US Dollar, as investors flock to safer assets, despite concerning reports like the Challenger Job Cuts data. The US Dollar is serving as a safe haven against the Loonie. For derivative traders, the overbought RSI near 70 suggests that taking long positions could be risky, making options a smarter choice. We recommend buying call options on USD/CAD with strike prices above 1.4150 for the upcoming weeks, offering a chance to benefit from future gains toward the 1.4415 target. This strategy helps limit potential losses if the pair takes a temporary dip. The current political uncertainty in the U.S. has increased implied volatility, which traders can leverage. Historical market shifts during the 2024 US election have shown that volatility can create opportunities. Traders expecting a significant price movement but uncertain about the direction once the shutdown ends may consider long straddles to profit from a breakout in either direction. Create your live VT Markets account and start trading now.

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