The USD/CAD currency pair keeps maintaining its uptrend. On Friday, the Canadian dollar strengthened significantly amid rising oil prices. It seems like the correlation between these instruments is likely to return. However, oil continues to remain within the $72–78 flat. Therefore, the growth of the Canadian dollar may turn out to be temporary.
Increased oil production in China may put pressure on its prices and the Canadian currency.
The country was able to increase oil production to almost an all-time high this year. Thus, the decline in domestic production since 2015 has been leveled off.
China is reducing the need to buy oil abroad. This fact weakens OPEC+ control of the oil market. Pumping out about 4.3 million barrels per day now, the country is once again the fourth largest oil producer in the world. Only the U.S., Saudi Arabia and Russia are ahead.
According to Bloomberg Opinion, local production accounted for only 27% of total oil consumption in 2019. This year, local production will cover about 29% of China's total oil consumption despite rising demand.
The weakening of the U.S. dollar on Friday was influenced by fresh statistics.
Last week's jobs data in the United States raised doubts about the strength of the labor market. This made investors more skeptical of the Federal Reserve's (Fed) interest rate hike plans.
The Labor Department's employment report released on Friday showed a 2.5-year low in the number of new jobs created in June.
However, the Fed may still aggressively tighten its monetary policy. Such verbal statements have a real effect on lowering inflation. Therefore, the weakening labor market may be ignored by the regulator. For the Canadian dollar, this means a new wave of weakening.
According to technical analysis, the USD/CAD currency pair is forming a flag pattern. The exit from this flag is usually downward. However, fundamentals indicate that the pattern will maintain at this point. Therefore, a rebound from the support level and growth to the upper part of the pattern is possible.
The local maximum of 1.337 will be the growth target. A stop-loss could be set upon trend breakdown at 1.325.
The USD/CAD currency pair growth:
Take profit – 1,337
Stop-loss – 1,325
This content is for informational purposes only and is not intended to be investing advice.
