A break above the 200-day SMA will set the stage for further gains

• USD/CAD does not have a firm intraday direction and is influenced by a combination of divergent forces.
• A rise in oil prices is seen underpinning the Loonie and acting as a headwind for the major.
• The rebound in US bond yields and a softer risk-on tone benefits the USD, lending support to the pair.

The USD/CAD pair is struggling to capitalize on Friday’s sudden move up over 100 pips and is oscillating in a narrow trading band at the start of a new week. Crude oil prices are gaining positive traction and pulling away from June 2023 lows set on Friday amid a potential hurricane on the US Gulf Coast, which accounts for about 60% of US refining capacity. This is seen as supporting the commodity-linked Loonie and capping the currency pair, although a combination of factors favors bullish traders and supports the outlook for significant upside.

OPEC+ delayed plans to raise output by 180,000 barrels per day until December, although it failed to reassure the market about global supply amid concerns over slowing oil demand from China – the world’s biggest crude importer. world. In addition, Friday’s rather lackluster US jobs data fueled concerns that demand for the fuel in the world’s biggest consumer is slowing, which in turn is keeping a check on any significant rise in crude oil prices. In fact, the closely watched US Nonfarm Payrolls (NFP) report provided clear evidence of a sharp deterioration in the labor market.

The US Bureau of Labor Statistics (BLS) reported that the economy added 142,000 jobs in August compared to the 160,000 expected, and the previous month’s reading was revised up to 89,000. Other details of the report showed that the unemployment rate fell to 4.2% from 4.3% in July and wage inflation, as measured by the change in average hourly earnings, rose to 3.8% from 3.6% previously . Meanwhile, the data reduced the likelihood of a bigger rate cut of 50 basis points (bps) by the Federal Reserve (Fed) at its next policy meeting on September 17-18.

According to CME Group’s FedWatch tool, markets are pricing in a roughly 70 percent chance of a 25 basis point rate cut by the Federal Reserve later this month, and a 50 bps cut is 30 percent. That, in turn, is triggering a modest rise in US Treasury yields, which, along with a softer risk-on tone, is helping the US dollar (USD) rally on Friday’s rebound from a one-week low. Against a backdrop of lingering geopolitical tensions, worries about a US economic slowdown are tempering investor appetite and benefiting safe-haven money.

The Canadian dollar (CAD), on the other hand, is under pressure from Friday’s weaker Canadian jobs data, which raised hopes for further interest rate cuts by the Bank of Canada (BoC). This, in turn, validates the short-term positive outlook for the USD/CAD pair and supports the prospects for a further intraday appreciation move. Going forward, there is no relevant market-moving economic data due out on Monday from either the US or Canada, leaving the currency pair at the mercy of USD and crude oil price dynamics.

Technical perspectives

From a technical perspective, the oscillators on the daily chart – although they have recovered from lower levels – are yet to confirm a positive bias. This makes it prudent to wait for some tracking strength beyond the all-important 200-day simple moving average (SMA), currently pegged ahead of the 1.3600 threshold, before positioning for any further gains. The USD/CAD pair could then accelerate the positive move towards the 38.2% Fibonacci retracement level of the steep decline seen in August. The subsequent move up could extend further towards the recovery of the 1.3700 mark, which coincides with the 50% Fibo. level.

On the other hand, the 1.3550 area is likely to protect the immediate downside, below which the USD/CAD pair could slip back to the psychological 1.3500 threshold. A convincing break below the latter will suggest that the recent rally seen over the past two weeks has run its course and will expose the 1.3440-1.3435 region, or the March low reached last month.

USD/CAD Daily Chart