USD/CAD resumes upside surge after oil-driven pullback

<p>When crude oil prices shot up dramatically in the last few days of August, the oil-correlated Canadian dollar also appreciated against the US dollar, as […]</p>

When crude oil prices shot up dramatically in the last few days of August, the oil-correlated Canadian dollar also appreciated against the US dollar, as might have been expected, placing pressure on the USD/CAD currency pair. Given the magnitude of the crude oil surge, however, USD/CAD pulled back only modestly due to the broad-based strength of the US dollar during the same period.

Currently, as crude oil in the first two days of September has given back nearly half of the gains made during the last days of August, USD/CAD has begun to resume its seemingly relentless push to the upside.

USD/CAD Daily Chart


Data from the US Energy Information Administration on Wednesday showed a large stock build of 4.7 million barrels against prior expectations of a 700,000 barrel decrease. This data follows Tuesday’s release from the American Petroleum Institute that showed a massive stock build of 7.6 million barrels.

These data points highlight persistent oversupply conditions that have served to pressure the price of crude oil and the Canadian dollar in the last several months while further propping up a consistently strengthening USD/CAD.

The pullback that occurred at the end of August brought USD/CAD down to a relatively shallow low of 1.3115 before rebounding on the first day of September. That low dipped only slightly and briefly below a sharp uptrend support line extending back to mid-June’s low.

From a longer-term perspective, USD/CAD’s uptrend extends all the way back for three years to September of 2012. This bullish trend accelerated even further to the upside in July of last year.

With little in the way of a lasting resolution to the massive oversupply situation for crude oil, as well as a persistently strong US dollar, the directional bias for USD/CAD continues to be to the upside. Of course, on the US dollar side of the currency pair, much will likely hinge on continuing speculation over a Fed rate hike decision and Friday’s employment data, which should help provide some impetus for that decision.

In the event that USD/CAD continues its surge above last month’s 11-year high of 1.3353, the immediate upside target continues to reside at 1.3400, followed by the 1.3600 resistance objective.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (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.