**Canadian Dollar Loses Ground as Bullish Momentum Fades on Friday**
*By FXStreet Team | Enhanced and Expanded Report*
The Canadian Dollar (CAD) experienced further losses heading into the close of the trading week on Friday as recent optimism supporting the currency began to dissipate. Market sentiment cooled, reversing some of the gains CAD had accumulated earlier in the week on the back of stronger fundamentals and oil price patterns. However, on Friday, broader macroeconomic and monetary policy dynamics diluted that momentum, leading USD/CAD to edge higher. The pair wrapped the day up nearly 0.3 percent after hitting fresh daily highs, indicating a bearish tilt to the Loonie’s weekly close.
Multiple factors influenced the Canadian Dollar’s retreat. From declining crude oil prices — a significant contributor to Canada’s export revenues — to cooling expectations for Bank of Canada (BoC) rate hikes and recovering risk appetite in U.S. equities, the interplay of domestic and global fundamentals altered investor positioning. Moreover, stronger than expected U.S. economic data added upward pressure on the US Dollar (USD), reducing the Loonie’s appeal in the short term.
This analysis offers a comprehensive look at what caused CAD to falter at the end of the week and what traders should watch going forward.
## Key Developments Driving CAD Weakness
### 1. Declining Crude Oil Prices
– Canada’s economy is heavily tied to the energy sector, particularly crude oil.
– On Friday, West Texas Intermediate (WTI) crude oil prices dropped below the $87 per barrel mark due to rising concerns of slowing global demand.
– A build-up in U.S. crude inventories indicated weakening refined product demand, creating a downward bias in oil prices.
– Data from the U.S. Energy Information Administration (EIA) earlier this week confirmed a rise in crude oil stocks, reversing previous stock drawdowns.
– Additionally, fears of a global economic slowdown, particularly in China, further weighed on energy demand projections, impacting CAD negatively.
### 2. Bank of Canada’s Interest Rate Path
– The BoC decided to hold its key interest rate steady at 5.00 percent during its most recent policy meeting in early September.
– While it left the door open for potential further hikes, the tone of the accompanying statement signaled hesitance amid signs of cooling inflation and weakening consumer demand.
– Canadian inflation slowed from 3.3% in July to 3.0% in August, reducing pressure on the BoC to maintain its hawkish stance.
– Money markets are pricing in a very low probability of further hikes in 2024, weakening investor appetite for CAD.
### 3. U.S. Economic Resilience Boosts USD
– The U.S. economy continues to outperform forecasts, with strong job growth and robust consumer spending.
– The ISM services PMI rose more than expected in August, indicating strength in the U.S. services sector.
– U.S. Nonfarm Payrolls saw a healthy gain in recent months, signaling a resilient labor market.
– These data points have led markets to reassess the Federal Reserve’s rate path, shifting expectations toward continued restrictive monetary policy well into 2024.
– As a result, the U.S. Dollar has gained, pushing USD/CAD higher.
## Technical Perspective: USD/CAD Chart Outlook
The USD/CAD pair has been oscillating within a tight range between 1.3530 and 1.3680 in recent sessions. The bounce on Friday saw a break toward the higher band of this range.
– Immediate resistance appears around 1.3680 — a region tested multiple times over the past week.
– A daily close above this level would open the door toward 1.3750 in the near term.
– On the downside, support lies near the 50-day moving average at 1.3530, followed by 1.3450.
– The Relative Strength Index (RSI) remains neutral at around
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