USDCAD is currently trading near the upper limit of its channel. The technical setup suggests a high probability of a pullback once this level is hit, followed by a downtrend. Fundamental factors do little to brighten the picture, also weighing on quotes.
Soaring crude prices remain the power behind the USDCAD’s current dynamic. West Texas Intermediate (WTI) oil is now trading between $100 and $105 per barrel, bolstered by the Middle East conflict. As a major energy exporter, Canada benefits from this environment, as does the fuel-linked loonie. As a result, the pair is under significant pressure.
The crude factor is also closely tied to the US Federal Reserve’s (Fed) and the Bank of Canada’s (BoC) monetary paths. At their March 18 meetings, both regulators kept interest rates unchanged, though the American one took a more hawkish posture due to reinforced inflation risks triggered by surging energy costs. Its counterpart, in contrast, adheres to softer rhetoric. The policy gap is now modestly tilted in favor of the dollar.
A few more nuances around inflation are worth noting. Canada’s Consumer Price Index (CPI) for February fell to 1.8%—below the central bank’s target—lending support to the national currency. The US cannot boast the same, as American inflation remains above 2%. The recent rise in oil prices is likely to boost the CPI in both countries, which will be seen in upcoming reports, but for now, no major shifts have appeared.
Last but not least, take into account geopolitical tensions and global trade relations. On the one hand, the Middle East crisis strengthens the dollar as a key safe haven. On the other, high fuel prices underpin the loonie. This explains USDCAD’s volatility. Developments in the Strait of Hormuz issue will dictate the pair’s trajectory over the coming weeks, not macroeconomic data.
The ultimate recommendation is to sell USDCAD at the current price, targeting 1.37250 within the next couple of months. To mitigate the risk of adverse market movements, place a Stop Loss order just above the resistance zone, or around 1.39500.
This content is for informational purposes only and is not intended to be investing advice.
