**USD/CAD Rises to 1.3950 as US Dollar Gains Strength: Analysis and Market Insights**
*Adapted and expanded from an article by FXStreet*
The USD/CAD currency pair has continued its upward trajectory, reaching 1.3950 during early European trading hours on Monday, October 30, 2023. This latest push was largely fueled by strength in the US Dollar (USD), which rose across the board as traders digested recent economic data and adjusted their expectations surrounding the Federal Reserve’s (Fed) monetary policy path.
As the Canadian Dollar (CAD) confronted conflicting domestic economic signals and plummeting oil prices, the US Dollar continued to benefit from a risk-averse environment and elevated Treasury yields. These developments collectively supported upward momentum in USD/CAD.
In this article, we will delve into the specific drivers of the currency pair’s movement, analyze the technical outlook, and explore broader market sentiment influencing the USD and CAD.
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**Key Drivers of USD/CAD Movement**
1. **Strength in the US Dollar**
The US Dollar Index (DXY), which measures the value of the greenback against a basket of six major currencies, posted moderate gains early in the day. The DXY hovered above 106.50 as of Monday morning, reflecting growing investor confidence in the USD due to:
– Higher yields on US Treasuries, with the 10-year yield maintaining levels above 4.80%.
– Market anticipation that the Federal Reserve may keep interest rates elevated for an extended period.
– Solid US economic data reinforcing the narrative of a resilient American economy.
Key data points fueling US Dollar strength included:
– Q3 GDP data revealed outstanding economic growth of 4.9% annualized, suggesting robust consumer spending and business investment.
– Inflation indicators, such as the Personal Consumption Expenditures (PCE) price index, remained persistently above the Fed’s 2% target.
2. **Crude Oil Prices Weigh Down the Canadian Dollar**
The Canadian Dollar is closely tied to oil prices, given Canada’s significant oil exports. However, crude oil futures are struggling amid global economic slowdown concerns and geopolitical developments.
On Monday:
– West Texas Intermediate (WTI) crude fell below $84.50 per barrel.
– The decline came as Middle East tensions did not escalate as significantly as previously feared, reducing the risk premium in oil markets.
– Simultaneously, weak manufacturing data in China added to fears of reduced global demand for energy.
As oil prices dropped, the Canadian Dollar felt the weight, giving the USD/CAD pair more room to climb.
3. **Market Uncertainty Ahead of Upcoming Fed Policy Meeting**
The Federal Open Market Committee (FOMC) is set to meet in the coming days, with the decision expected on November 1, 2023. While markets widely anticipate a pause in rate hikes, investors will closely scrutinize the Fed’s forward guidance.
According to CME’s FedWatch Tool, there is currently an over 90% chance the Fed maintains its benchmark rate in the current range of 5.25%–5.50%.
Nevertheless, hawkish remarks from several Fed officials in recent weeks have kept expectations of another rate hike alive, especially if inflation fails to cool further. This uncertainty is further supporting the USD while contributing to volatility in currency markets.
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**Technical Analysis: USD/CAD Gears Up for More Gains**
From a technical charting perspective, USD/CAD appears to be in a bullish structure based on daily and weekly charts.
**Support and Resistance Levels**
– Immediate resistance was found near the 1.3950 psychological level. Should the pair break above this region, the next significant resistance would be around 1.4000.
– On the downside, initial support lies near the 1.3850 zone, followed by more robust levels at 1.3810 and 1
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