USD/CAD Price Analysis: Falling Oil Pulls CAD Down

• Oil prices fell as fears of supply disruptions eased.

• The pair got a boost from Friday’s upbeat US non-farm payrolls report.

• Traders are pricing in an 86% chance of a 50 basis point Fed rate cut in November.

USD/CAD price analysis suggests fresh upside for the pair as the Canadian dollar weakens amid lower oil prices. Simultaneously, the dollar strengthened as market participants reduced bets on the Fed’s rate cut.

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Oil prices fell on Tuesday as fears of supply disruptions eased into calm after Iran attacked Israel. Markets have stalled as they wait to see if Israel will retaliate. Retaliation could mean attacks on Iranian oil that would tighten the market and push prices higher. A pullback in oil weighed heavily on the Canadian dollar. As a result, the USD/CAD pair rose.

In addition, the pair received a boost from Friday’s US non-farm payrolls report, which changed the outlook for Fed rate cuts. Ahead of the numbers, markets were pricing in a more than 30% chance of a 50bps rate cut in November. However, the data revealed an unexpected 254,000 new jobs in the US. In addition, the unemployment rate fell to 4.1%, suggesting a resilient labor market. As a result, market participants adjusted rate cut bets, pricing in an 86% chance of a 50 bps rate cut in November.

A switch from an aggressive pace to a gradual pace is bullish for the dollar, but only for a while. As long as borrowing costs continue to fall, the greenback will suffer. All eyes are now on the upcoming US CPI report. Inflation has been steadily falling, and economists expect it to reach 2.3% in September. Policy makers are also more confident that inflation will reach the 2% target. Therefore, the report may not significantly change the outlook for rate cuts.

Key USD/CAD Events Today

There will be no significant reports from Canada or the US. Market participants will therefore be watching for developments in the Middle East war.

USD/CAD Price Technical Analysis: Limited Bullish Momentum

Technically, the USD/CAD price has maintained a steep rally since breaking above and retesting the 30-SMA. Since then, it has broken through several key resistance levels. Bulls are now targeting the 1.3650 resistance level.

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However, the RSI is currently in the overbought region, indicating a high for the bulls. Therefore, they may not be strong enough to breach 1.3650 without pulling back first. A pullback would allow the pair to retest the 1.3600 or 30-SMA level.

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