USD/CAD rebounds from support on steady US dollar, falling oil

<p>USD/CAD extended its rebound on Monday as the US dollar gained back some traction and crude oil plunged in response to concerns about potentially falling […]</p>

USD/CAD extended its rebound on Monday as the US dollar gained back some traction and crude oil plunged in response to concerns about potentially falling demand from China and the future lifting of sanctions on Iranian oil.

This combination of factors served to push USD/CAD higher after the currency pair rebounded last week from near 1.2800, a major support/resistance level since the beginning of the year.

The past three weeks has seen USD/CAD drop from its 11-year high of 1.3456 in late September down to a three-month low of 1.2830 late last week. This drop was primarily driven by both a pullback in the US dollar on increasing doubts over a 2015 Fed rate hike, as well as a temporary surge in crude oil prices, which is closely correlated with the Canadian dollar.

USD/CAD Daily Chart

 

While the US dollar’s fate should remain in continuous flux for the near-term as speculation over the timing of a Fed rate hike continues unabated, crude oil’s potential prospects appear slightly better defined.

With the Iranian nuclear deal having been formally adopted on Sunday, sanctions on Iranian oil could start to be lifted within months. This could flood an already saturated crude oil market with significant additional supply, further pressuring oil prices. Add to this the broad-based fears that a global economic slowdown, especially in China, will weigh on demand for the commodity, and the foreseeable future for crude oil appears less than promising. This scenario should place further pressure on an already weak Canadian dollar, thereby potentially pushing USD/CAD higher.

On Monday, the currency pair tentatively pushed up above the 1.3000 psychological resistance level. With any sustained trading above 1.3000, the next key short-term target to the upside is around the 1.3200 resistance level, with a further bullish target at the 1.3400 resistance level – slightly below September’s noted 11-year high. To the downside, major support continues to reside at the key 1.2800 level.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.