Sat, June 15, 2024

USD/CAD Closes at 1.3626 Amid Oil Drop and Yield Decline

dollar, usd/cad-american-canadian-dollars

Quick Look:

  • Market Opening: USD/CAD opened at 1.3694 and closed at 1.3626, with WTI oil at $72.77 and gold at $2330.35.
  • Oil Prices and the Loonie: Falling oil prices pressured the Canadian dollar despite initial support from OPEC’s production cuts.
  • US Treasury Yields: A drop in the 10-year yield weakened the US dollar, impacting USD/CAD dynamics.
  • Bank of Canada’s Rate Cut: Market expects a 25 basis point rate cut due to weak economic growth and dovish signals.

The trading session for USD/CAD commenced with the pair opening at 1.3694, reflecting an overnight range between 1.3621 and 1.3700. By the end of the session, it closed at 1.3626. Concurrently, WTI oil was priced at $72.77, while gold traded at $2330.35.

WTI Crude Falls from $77.52 to $72.48, Pressuring CAD

The Canadian dollar, also known as the Loonie, faced pressure from falling oil prices. WTI crude dropped from $77.52 to $72.48. Initial support from OPEC’s announcement to extend production cuts until the end of 2025 was short-lived. The subsequent decision to roll back these cuts starting in October, with a complete phase-out within a year, heightened trader concerns over increased production amid slowing global demand.

US Treasury yields significantly impacted the currency market, with the 10-year yield falling from 4.512% to 4.38%. This decline weakened the US dollar, affecting investor sentiment and expectations thereby influencing USD/CAD dynamics.

Bank of Canada Expected to Cut Rates by 25 Basis Points

Anticipation surrounds the Bank of Canada’s upcoming decision, with market expectations pointing towards a 25 basis point rate cut. This outlook is driven by weak economic growth and dovish comments from Governor Tiff Macklem, suggesting a more accommodative monetary policy stance is likely.

The May Manufacturing PMI in the US was reported at 48.7, missing the expected 49.6. This result fuelled speculation about a sooner-than-expected rate cut by the Federal Reserve. Additionally, the market is eagerly awaiting the JOLTS Job Openings data, expected to confirm an easing labour market, providing further insights into the economic outlook.

EUR/USD and GBP/USD, USD/JPY and AUD/USD Movements

The EUR/USD pair initially rallied from 1.0828 to 1.0906, peaking at 1.0916 during Asian trading hours before sliding back to 1.0865 in New York. This movement exhibited little reaction to German unemployment data but remains poised ahead of the upcoming ECB meeting on Thursday. Similarly, the GBP/USD pair rallied from 1.2700 to 1.2818 in Asia, dropping to 1.2755 in New York. This pair is closely monitored ahead of the US employment report on Friday and the UK election on July 4.

The USD/JPY pair experienced a decline from 157.46 to 155.96, influenced by the ISM PMI data and the US 10-year Treasury yield drop. Meanwhile, the AUD/USD pair traded within a range of 0.6631 to 0.6699, impacted by lower commodity prices, particularly a sharp drop in iron ore prices.

USD/CAD at 1.3680 with Bearish Bias; Key Levels at 1.3600

Currently, USD/CAD trades around 1.3680 during European hours on Tuesday, driven by the decline in crude oil prices. The daily chart reveals a bearish bias, with the RSI slightly above 50 and the MACD positioned below both the centerline and the signal line, indicating convergence below the signal line.

Key support levels for USD/CAD include the psychological barrier at 1.3600, a throwback level at 1.3590, and significant support at 1.3500. Resistance levels are identified at the upper boundary of the descending channel at 1.3700, with further targets at 1.3800 and April’s high of 1.3846.

BoC Holds at 4.75%, Eyes Possible July Rate Cut

The current interest rate stands at 4.75%, with a 25 basis point cut expected at this meeting. Alternatively, the Bank of Canada might hold rates steady while signalling an imminent cut. In July, the Bank could outline a more comprehensive easing strategy and provide updated economic and inflation forecasts in the new Monetary Policy Report.

The Canadian dollar has been the worst performer of the week, primarily due to the prolonged decline in oil prices. The near-term outlook for USD/CAD remains bullish, with the 1.3589 cluster support intact. A resistance break could signal a resumption of the rise from 1.3176, targeting the key resistance at 1.3976 and projecting to 1.4149.

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