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USD/CAD: Oil Supports the Canadian Dollar


19 September 2023 Written by Zixin Wang  Finance Industry Expert Zixin Wang

The USD/CAD pair is actively declining during Tuesday's trading session, continuing the downward rally that began on September 8th when the quotes failed to hold near local highs around 1.3700. Today, the pair is trading at the 1.3460 level, testing price lows from August 15th. Improved market sentiment has led to reduced interest in the dollar. The U.S. Dollar Index (DXY), which tracks the dollar's performance against a basket of six major currencies, lost 0.25% on Monday and once again fell below the support level of 105.00. At the same time, the yield on 10-year U.S. Treasury bonds fell by 0.6% to 4.3%, adding further pressure to the American currency. Market participants believe that the dollar's corrective dynamics may persist until the conclusion of the Federal Reserve's meeting, the results of which will be announced on Wednesday.

The Canadian dollar is also getting support from the ongoing bull rally in oil, a crucial export resource for the Canadian economy. Specifically, during Tuesday's Asian session, WTI crude oil surpassed the $91 per barrel resistance level. Investors reacted positively to August data from China, where industrial production increased from 3.7% to 4.5%, and retail sales rose from 2.5% to 4.6%. The statistics indicate a recovery in consumption levels in China, which will lead to increased demand for oil from the world's leading hydrocarbon importer.

As for investment demand for commodities, it remains high, just like physical demand. According to the U.S. Commodity Futures Trading Commission (CFTC) report, speculative positions reached 326.9 thousand, up from 299.3 thousand earlier, marking the highest since May 2022. This strong demand is also confirmed by recent reports from the Chicago Mercantile Exchange (CME Group), where average daily trading volumes have exceeded 1.1 million contracts since the beginning of last week, compared to 650 thousand contracts at the beginning of the month.

USD/CAD Sell Limit 1.3480 TP 1.3200 SL 1.3580

USD/CAD Sell Limit 1.3480 TP 1.3200 SL 1.3580

Today, traders' attention is focused on inflation data in Canada, which will be released at 12:30 GMT. According to forecasts, consumer prices in Canada rose by 3.8% year-on-year in August, up from 3.3% in July. If expectations are met, the Bank of Canada will have another reason to consider raising the key interest rate. In such a scenario, the decline in the USD/CAD pair may continue.

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