- USD/CAD rises for the ninth consecutive day, reaching a more than two-month high on Monday.
- Falling oil prices weaken the Canadian dollar, offering support to the pair amid a strong USD.
- Diminished expectations of a larger rate cut from the Bank of Canada (BoC) provide a boost to the CAD, limiting further gains for the pair.
The USD/CAD pair extends its upward trend for the ninth consecutive day, reaching the 1.3785-1.3790 range, its highest level since August 7, during Monday’s Asian session. This momentum is fueled by a strong US Dollar (USD) and falling Crude Oil prices, which weaken the commodity-linked Canadian Dollar (CAD).
The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, hovers near a two-month high touched last Thursday, driven by growing expectations of a more cautious policy easing by the Federal Reserve (Fed). Markets are now pricing in over a 90% probability that the Fed will cut rates by only 25 basis points (bps) in November. This keeps US Treasury bond yields elevated, further strengthening the USD and providing a tailwind for the USD/CAD pair.
Meanwhile, crude oil prices opened the week with a bearish gap, reacting to weaker inflation data from China over the weekend, which signaled ongoing deflationary pressure and dampened the outlook for fuel demand. Additionally, disappointment over China’s fiscal stimulus plans outweighs Friday’s strong Canadian employment data, prompting investors to scale back expectations of a larger rate cut from the Bank of Canada (BoC). This puts pressure on the CAD, offering additional support to USD/CAD.
However, it remains uncertain whether USD/CAD bulls will continue to push higher or take profits ahead of Tuesday’s release of Canadian inflation data. Geopolitical risks in the Middle East and concerns over potential supply disruptions from key oil-producing regions could limit further declines in oil prices, potentially deterring CAD bears from making fresh bets. Thin market liquidity, due to a holiday in both the US and Canada, may also cap further movement in the USD/CAD pair.
