The Canadian Dollar (CAD) is doing well, thanks to favorable interest rate differences and a declining US Dollar (USD). While short-term signs hint at a potential pause or rebound, charts suggest the CAD might drop further toward the 1.35 to 1.36 range. The CAD is currently trading at its highest level since September against the USD, marking its best performance since April. Favorable interest rate spreads suggest that Canada’s monetary policy could keep boosting the CAD’s value.

Potential Drop for the USD

If the USD falls below 1.3769, it might continue to decline, possibly reaching the 1.35 to 1.36 range soon. While indicators show a bearish trend for the USD, minor rebounds could happen before any major declines. Indicators show that any losses for the USD may be limited, giving USD sellers a chance to benefit. Resistance levels are noted at 1.3850/75 and 1.3900/40. This article shares expert insights and analysis, focusing on trends and technical factors in the currency market. The Canadian dollar is strong right now, trading at its highest level since September. This rise is mainly driven by interest rate expectations. Last week, the Bank of Canada kept its rate steady at 4.25%, while the Federal Reserve hinted at possible cuts early next year. This difference in policy makes the CAD more appealing.

Impact of Commodity Prices

For traders dealing with derivatives, this suggests they may want to position for a further drop in the USD/CAD exchange rate towards 1.35 to 1.36. Traders might consider buying options that profit if the USD falls below these levels in the coming weeks. Recent data shows Canada’s job market added a solid 40,000 jobs in November, while Canadian inflation is at 3.2%, compared to the US’s cooling rate of 2.9%. However, it’s important to note that the USD has declined quickly, which could lead to a brief rebound. A slight rally back towards the 1.3850 resistance area would not be unexpected. Traders might see this temporary bounce as a chance to enter new bearish positions at a better price. The strength of the Canadian dollar is also supported by commodity prices, with West Texas Intermediate crude oil holding steady around $85 a barrel. This situation resembles what we saw in late 2022, when similar central bank policies led to a lasting increase in the Canadian dollar’s strength. That historical trend offers valuable insight for what might happen next. Create your live VT Markets account and start trading now.

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