USD CAD extends losses as crude oil rebounds

While the US dollar was mostly stronger on Monday, gaining back much of what it initially lost on this past Friday’s knee-jerk reaction to a disappointing US employment report, the greenback continued to be notably weaker against commodity currencies like the Australian, Canadian, and New Zealand dollars.

In the case of USD/CAD, the US dollar initially fell this past Friday against the Canadian dollar, much like it did against other major currencies like the euro, pound, and yen. What was different, however, was that the US dollar has not subsequently rebounded and recovered against the Canadian dollar on Monday the way it has against those three other currencies.

The beginning of the new trading week has seen a further downside extension for USD/CAD as the Canadian dollar strengthened along with gasoline and crude oil prices, despite a generally stronger US dollar.

The week ahead brings some key data that could affect the current USD/CAD pullback. Tuesday brings both the US and Canadian trade balance data for August. These figures will be released at approximately the same time on Tuesday morning. On Wednesday, the US Energy Information Administration releases crude oil inventory data for the past week. This data should have an indirect effect on the Canadian dollar, as crude oil has a positive correlation. Finally, Friday brings the employment change and unemployment rate data for Canada. This also has the potential to move the Canadian dollar significantly.

From a technical perspective, USD/CAD dropped below key support at its 50-day moving average and the 1.3200 level on Friday, establishing a new two-week low, and has continued on Monday to decline towards major 1.3000 psychological support.

Less than a week ago, the currency pair reached a new 11-year high at 1.3456 before turning to the downside. Overall, USD/CAD continues for the time being to be entrenched in a sharp bullish trend that has been in place since the May lows just above 1.1900. From a longer-term perspective, however, USD/CAD has been trading within a strong uptrend since the late-2012 lows below parity.

If the current pullback extends below the noted 1.3000 psychological support level on a US dollar pullback and/or further rebound in crude oil, major support for the currency pair resides at the key 1.2800 level, which represented the previous long-term highs before July. Any substantial rebound for USD/CAD back above 1.3200 should once again target the key 1.3400 resistance objective.