The USDCAD dropped to a new low during the early North American session, falling briefly below a swing level of 1.36697. This decline halted at the 50% midpoint of 1.36645, from the July low to the high, leading buyers to enter the market. The price has since bounced back toward 1.3676. Staying above the 50% level shows it is a key risk and bias indicator. If the price continues to rise, it might reach the 38.2% retracement at 1.36902 and the session high at 1.36944.

Important Resistance Level

The level of 1.36944 is significant because it relates to the low from Friday and another low from Monday. This makes it an important resistance point. Currently, the technical range for USDCAD is between the support at 1.36645 and resistance at 1.36944. Traders are likely watching this range for potential breakouts, which would signal the next direction for the market. The bounce from the support level is a key moment for traders. This technical base is being tested by economic factors, and the market is looking for a fundamental reason to break out of the current tight range.

Diverging Policy Expectations

The case for a stronger U.S. dollar is strengthening, which we think helped create the support. Recent data shows U.S. core inflation remains steady. Additionally, August added a solid 187,000 jobs, backing the Federal Reserve’s view of keeping interest rates “higher for longer.” This difference in policy expectations makes buying U.S. dollars on dips a smart strategy. On the other hand, the Canadian economy is showing signs of weakness, which could push the currency pair higher. The Bank of Canada has paused its rate hikes due to concerns about a slowdown, especially after nearly 40,000 jobs were lost in July. This weak data adds downward pressure on the Canadian dollar. However, surging crude oil prices are a challenge to a major rally. WTI crude recently climbed above $90 a barrel for the first time this year, providing strong support for the commodity-linked Canadian dollar. This clash between weak economic data and strong oil prices keeps the pair in its current narrow range. Considering these mixed signals, we see buying call options as a wise way to prepare for a potential breakout. This approach allows traders to profit from a possible rise driven by central bank policy differences while keeping their risk defined if rising oil prices limit gains. History shows that when the U.S. central bank is more aggressive than Canada’s, it often leads to sustained multi-month gains in the currency pair. Create your live VT Markets account and start trading now.

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