The Canadian Dollar has dropped for three consecutive days against the US Dollar, with the USD/CAD pair reaching around 1.4050. This decline follows a recent 25-basis point rate cut by the Bank of Canada, which aligns with a similar action from the Federal Reserve. Canada’s dependence on crude oil and the ongoing trade war have also put pressure on the Loonie, impacting its performance. Recent data shows a 0.3% decline for the Canadian Dollar compared to the US Dollar. The Standard & Poor’s Canadian Manufacturing PMI indicates some improvement in business conditions. However, overall expectations remain negative due to ongoing trade tariffs. The USD/CAD price has moved above important exponential moving averages, suggesting a possible trend reversal. There is resistance for bids between 1.4050 and 1.4100, and if it breaks above this, it may reach around 1.4300.

Factors Influencing the Canadian Dollar

Several factors affect the Canadian Dollar, including the Bank of Canada’s interest rate decisions, oil prices, economic health, and inflation. Changes in interest rates impact the currency’s value, with higher rates being generally better. Oil prices are particularly significant since they are Canada’s main export. Economic indicators like GDP and PMI reveal the economy’s health and influence capital flows. With the Canadian Dollar struggling, the USD/CAD pair is moving back towards the 1.4050 level. Both the Bank of Canada and the Federal Reserve cut rates by a quarter-point last week, narrowing the interest rate gap. This shifts our focus to the underlying weaknesses in the Canadian economy and commodity prices. The economic outlook raises concerns, as expectations for business are weak. Recent data shows that the S&P Global Canada Manufacturing PMI for October has fallen to 49.8, indicating a slight decline in business conditions. This reinforces the idea that trade tariffs are negatively affecting the economy. Crude oil, crucial for the Loonie, isn’t providing much support. Although West Texas Intermediate (WTI) crude prices are around $78 per barrel, this isn’t enough to create strong momentum for Canada’s economy. These price levels do not encourage significant new investment in Canadian oil production, which usually requires higher sustained prices for meaningful economic growth.

Technical Analysis and Market Strategy

Looking at technical aspects, the ‘golden cross’ formation on daily charts—when the 50-day moving average crosses above the 200-day average—indicates a possible bullish trend for USD/CAD. Derivative traders might consider positioning for a potential breakout above the 1.4100 resistance zone. Buying call options with strike prices close to 1.4200 could be a good strategy to benefit from continued upward movement. It’s important to note that the pair has previously reached higher levels, such as the peak near 1.46 in March 2020 during market stress. A strong break above 1.4100 could lead to the 1.4300 level as the next target. This historical context makes a significant upward move seem quite likely. However, if it fails to break through the current resistance, the pair may drop back and test support around 1.3900. To manage risk, traders with bullish positions might consider buying put options with a strike price below 1.3850. This serves as a hedge against a sudden price reversal if buying momentum weakens. Create your live VT Markets account and start trading now.

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