**Canadian Dollar Strengthens as US Dollar Weakens: Market Trends and Analysis**
*Source: Adapted from an article by Matein Khalid, FXStreet*
The Canadian Dollar (CAD) made a notable recovery against the US Dollar (USD) during Tuesday’s trading session, reversing earlier losses as investors digested recent market developments. The greenback lost ground amid a decrease in US Treasury yields and a pullback in risk aversion, helping boost demand for commodity-linked currencies like the CAD.
As the economic calendar remains relatively light ahead of key data releases later this week, investors focused on broader macro trends for currency direction. The Canadian Dollar’s recovery reflects a combination of improving sentiment towards commodity currencies and easing pressure from the US Dollar. Below, we explore the key factors affecting the CAD/USD exchange rate and how broader macroeconomic themes continue to impact both currencies.
## Broad USD Weakness Supports Canadian Dollar
The US Dollar slipped across the board on Tuesday, providing some relief to rival currencies such as the CAD. This came as:
– **US Treasury yields declined**: The 10-year benchmark yield dropped below 4.65 percent, signaling waning investor demand for safe-haven assets following diminished concerns over US inflation.
– **Investor sentiment improved slightly**: Global equity markets recovered from earlier losses sparked by geopolitical concerns, pushing money out of the USD and into risk-on trades.
– **Speculation about the Federal Reserve’s monetary policy path** gradually shifted. After last week’s robust US Producer Price Index (PPI) and Consumer Price Index (CPI) readings, market participants briefly renewed expectations of sustained rate hikes. However, recent statements from Fed officials hinted at a cautious approach to additional tightening.
## Canadian Dollar Finds Tailwinds from Oil Prices and Economic Resilience
The Canadian Dollar gained support from external and domestic conditions including firm energy prices and relatively stable economic fundamentals.
### Energy Prices and CAD Correlation
Canada remains one of the world’s top crude oil exporters, and the CAD has a positive correlation to oil price trends, particularly West Texas Intermediate (WTI) crude:
– WTI crude oil prices held steady near the $87 per barrel mark on Tuesday, supported by tightening global supply.
– Rising geopolitical tensions in the Middle East heightened fears about potential disruptions to oil supply, lending support to oil prices.
– These higher oil prices helped boost the Canadian trade balance and provided an underlying base for CAD strength.
### Canadian Economic Indicators Remain Solid
While Canada’s economic outlook has faced some headwinds in 2024, signals of resilience have emerged:
– **Unemployment remains relatively stable**: The Canadian labor market has not exhibited significant signs of loosening despite global uncertainty.
– **Inflation remains elevated**: The Bank of Canada (BoC) continues to express concern about inflationary pressures, which could result in policy tightening if necessary.
– **BoC watched closely for rate path**: Markets are carefully observing speeches from BoC policymakers and inflation data for clues on monetary policy. Even though the BoC paused rate hikes earlier this year, it signaled readiness to resume tightening if inflation persists.
## Technical Outlook for USD/CAD
At the technical level, the USD/CAD pair retraced from earlier highs around 1.3670 and sank toward the 1.3620 area, reflecting a renewed CAD push. Analysts highlighted key price action levels:
– **Resistance**: Strong resistance remains near the 1.3670 region. Breaching it could open a path toward 1.3700 and the 2023 highs around 1.3785.
– **Support**: The pair found immediate support near 1.3620. Below this, the bulls may defend the 100-hour Simple Moving Average near 1.3585.
– **Momentum indicators**: Daily Relative Strength Index (RSI) readings indicated a neutral stance, leaving room for both upside and downside after recent consolidation.
The reversal lower for USD/CAD indicates that the
Read more on USD/CAD trading.