USD/CAD rebounds from support on steady US dollar, falling oil
James Chen October 20, 2015 12:45 AM
<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.
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.
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