**USD/CAD Technical and Fundamental Outlook: Struggles Continue Near Multi-Week Lows**
*By Haresh Menghani; Expanded and Updated with Additional Sources*
The US dollar to Canadian dollar (USD/CAD) currency pair continues its downward trend, hovering near a two-week low in the 1.3600 zone. Bears seem to retain control, putting the pair on a vulnerable footing. A combination of technical indicators and fundamental drivers has led to this soft spell, as investors focus on interest rate differentials, oil market dynamics, and broader macroeconomic themes impacting both the US and Canadian economies.
## USD/CAD: Key Highlights
– The pair remains under pressure, stuck around its lowest levels since early July, with recent lows near 1.3600.
– A softer US dollar and a rebound in crude oil prices bolstered the Canadian dollar (CAD).
– The Fed’s dovish shift is providing additional downward momentum for USD.
– Risks remain tilted to the downside unless the pair reclaims significant near-term resistance levels.
## Current Market Sentiment and Price Action
The USD/CAD pair attempted a modest recovery during early Asian-European trading hours today but continues to trade near 1.3600. As Haresh Menghani reported on FXStreet, this area marks a crucial technical and psychological support level that has yet to yield to more aggressive selling. However, the ongoing subdued price action suggests limited appetite for aggressive USD buying, particularly given a shift in expectations for US interest rates.
Technically, USD/CAD has been trading with a bearish bias since rejecting levels above 1.3700 earlier this month. Price action near the 200-hour Simple Moving Average (SMA) and 100-hour SMA has acted as a ceiling, with selling pressure intensifying on any move toward resistance.
## Why Is USD/CAD Falling?
Several drivers are at play here. The movement in USD/CAD stems mainly from:
### 1. Expectations Surrounding the US Federal Reserve
– Market participants have gradually priced in a higher probability that the Fed will initiate rate cuts in the latter part of 2024.
– Recent commentary from policymakers and data highlighting slowdowns in inflation and labor market strength point toward a less aggressive policy stance.
– A dovish Fed puts pressure on US Treasury yields, which reduces demand for the greenback against high-yielding or commodity-linked currencies.
According to the CME FedWatch Tool, there is over a 60% chance of a 25 basis point rate cut as early as the Federal Open Market Committee’s September meeting. As interest rate expectations fall, so does investor appetite for the US dollar in carry trades.
### 2. Crude Oil’s Rebound Supports the Canadian Dollar
– Canada is among the world’s top oil exporters. Hence, oil prices have a direct correlation with CAD strength.
– West Texas Intermediate (WTI) crude oil has recently moved toward $79 per barrel, stabilizing above its 50-day SMA.
– Crude has rallied due to:
– Ongoing geopolitical tensions in the Middle East.
– Forecasts of supply disruptions tied to hurricane season in the Gulf of Mexico.
– An anticipated pick-up in global demand during the second half of 2024.
With crude oil prices climbing, the loonie has attracted more buying interest, especially as the Bank of Canada recently hinted it could be more cautious in cutting rates relative to the Fed.
### 3. Weak US Data
Recent macroeconomic indicators from the US also contributed to the dollar’s subdued tone:
– Retail Sales for June were below expectations.
– Jobless claims remain elevated, signaling a cooling labor market.
– Inflation reported via the Consumer Price Index (CPI) showed signs of deceleration.
This combination of economic data weakens the case for higher or sustained rates in the US and further boosts the appeal of currencies like the Canadian dollar.
## Technical Outlook: Bearish Structure Remains Intact
Zooming in on the charts
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