Canadian dollar weakens amid falling oil prices

03 August 2023 172
Canadian dollar weakens amid falling oil prices

The USD/CAD currency pair has moved to the stage of active growth over the last couple of days. Such movement was caused both by market turmoil and weakening oil prices.

The downgrade of the US credit rating by Fitch caused a turmoil in the world markets. The market participants are losing confidence in the US economy ahead of key data releases this week. Fitch cited deterioration in fiscal conditions over the next three years and the nation's high and growing public debt burden. However, most analysts are not worried about a downgrade.

It’s difficult to predict the impact of Fitch’s actions on the oil price. Nevertheless, the significant fall in prices yesterday was indicative, and further decline in prices shouldn’t be ruled out.

The oil price ignores the positive data on crude oil inventories. This negatively affects the dynamics of the Canadian dollar.

At the end of July, the US crude stocks fell by 17 million barrels, which is a record US crude stock drawdown. Export exceeded 5 million barrels per day, while oil companies increased the production level.

Also, the decrease in inventories exceeded analysts' forecasts, who expected its reduction by 1.4 million barrels. Global demand outstrips supply amid production cuts by major oil producers.

The OPEC+ group's Joint Ministerial Monitoring Committee (JMMC) panel will hold a meeting on August 4. According to Reuters, OPEC+ is unlikely to revise its oil production strategy. In addition, Saudi Arabia could deepen output cuts by 1 million barrels per day for another month to include September.

On Friday, data on the labor market in Canada will be released. Analysts expect worsening conditions due to the rate hikes. This scenario is negative for the Canadian dollar. The weak labor market will force the Bank of Canada to soften its monetary policy.

According to the technical analysis, the USD/CAD currency pair broke out of the flat. Also, the Fibonacci level of 0.236 from the whole correction wave was broken.

The nearest growth target will be the level of 1.345. It’s the border of the global downtrend and an important level of 0.5 Fibonacci. A Stop-loss should be placed below yesterday's Maribozu candlestick and below 0.236 Fibonacci, which corresponds to the level of 1.326.

Growth of the USDCAD currency pair:

Take profit — 1,345

Stop-loss — 1,326

This content is for informational purposes only and is not intended to be investing advice.

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