Canadian Dollar hits fresh low since August 5, seems vulnerable vs bullish USD
The USD/CAD pair touches a fresh high since August 5 during the Asian session on Tuesday, though it lacks follow-through buying and remains below mid-1.4000s.
On Tuesday, the USD/CAD exchange rate reached a fresh peak since August 5 during the Asian session, though it failed to gain momentum and remained under the 1.4000 mark. A bounce in crude oil prices, following a one-and-a-half-week low, bolstered the Canadian Dollar (CAD) as it is tied to oil trade. This, coupled with the Bank of Canada (BoC) Governor, Tiff Macklem's hawkish remarks, created a challenging environment for the USD/CAD pair.
Macklem cautioned that soaring energy prices could drive inflation upward, prompting the central bank to weigh between rate hikes or maintaining the status quo. Macklem further highlighted the uncertainty caused by unpredictable US trade policies, which could impede Canada's economic progress. Moreover, the USD/CAD pair faced pressure from retaliatory tariffs imposed by Canada and the US, adding to the negative sentiment.
Analysts at HSBC forecasted a bullish trajectory for the USD, backed by the Federal Reserve's (Fed) hawkish stance and escalating tensions in the Middle East, keeping the USD close to its peak since late July. HSBC acknowledged that the USD's rally following the decision was anticipated, as the unanimous vote bolstered confidence in the Committee's tightening bias.
The analysts foresee a possible further rate hike in 2027, but they do not anticipate a significant shift in rate expectations or the USD. As for crude oil prices, their recent decline alleviated inflation concerns, causing US bond yields to fall and hindering aggressive bets from USD bulls. The next crucial event for the USD/CAD pair will be a meeting between US President Donald Trump and Chinese President Xi Jinping, along with developments concerning the Middle East crisis.
Currently, the USD/CAD pair is bullish beyond the 100-day Simple Moving Average (SMA) at 1.3953 and the mid-range Fibonacci retracement at 1.3992. If the spot price overcomes the overhead Fibonacci resistance at 1.4052, it could lead to a breakthrough in the next resistance cluster near the 78.6% retracement at 1.4138. Conversely, if the price fails to clear this level, it may face further resistance at the 100-day SMA at 1.3953, followed by the 38.2% retracement at 1.3932 and the 23.6% retracement at 1.3857.
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