**Canadian Dollar Inches Higher Against US Dollar: Market Analysis and Outlook**
*Original article credit: FXStreet, authored by Eren Sengezer*
The Canadian dollar (CAD) saw a modest appreciation against the US dollar (USD) during the North American session on September 15, 2020. This marginal gain was largely driven by the ongoing fluctuations in crude oil prices and the broader macroeconomic environment. As a commodity-linked currency, the loonie, as the Canadian dollar is often called, is particularly sensitive to movements in crude oil prices, while market sentiment, interest rate expectations, and economic indicators also significantly shape its trajectory.
Below is a comprehensive look into the most recent developments affecting the CAD/USD currency pair, including contributing factors, the economic outlook in Canada and the United States, and forecasts from leading financial institutions.
## Canadian Dollar Strengthens Slightly vs USD
According to FXStreet’s original report by Eren Sengezer, the CAD edged slightly higher against the greenback during the trading session on September 15. Analysts at Scotiabank highlighted the semantics of this movement, pointing to subdued volatility and a general hesitance in markets to initiate large swings ahead of major economic events.
The slight appreciation doesn’t signify a sizable trend reversal but highlights a cautious sentiment going into the latter half of the year. The move could be attributed to:
– Uncertainty surrounding the US Federal Reserve’s monetary policy and upcoming economic data.
– Relative stability in oil prices, which underpin the Canadian dollar’s performance given Canada’s status as an oil exporter.
– Positioning of large market players in a wait-and-see mode amid global macroeconomic uncertainty.
## Oil Prices as a Key Driver
Crude oil remains one of the leading macro-level catalysts for the Canadian dollar. Canada is one of the top oil-producing nations in the world, and approximately 96 percent of all crude oil exported from Canada is sent to the United States. This linkage makes the loonie highly sensitive to fluctuations in oil markets.
On September 15, crude prices maintained a relatively firm footing. Both Brent and West Texas Intermediate (WTI) hovered near recent highs, supported by:
– Renewed optimism around China’s economic recovery as industrial output surprised to the upside.
– Data showing a significant reduction in crude stocks in the US according to the EIA (Energy Information Administration).
– Supply-side constraints following production cuts from OPEC+ nations.
All these factors lent moderate support to the CAD, which in turn helped cap any significant upward movement in the USD/CAD exchange rate.
## The Role of Risk Sentiment
Investor sentiment has also been a critical variable in the USD/CAD pair’s dynamics. Global equity markets showed mixed activity, leading to moderate demand for risk-linked currencies such as the Canadian dollar.
While safe-haven flows into the USD have waned in recent weeks due to improving macroeconomic data, the Canadian dollar couldn’t capitalize fully because of:
– A soft employment report earlier in September that raised concerns about the strength of Canada’s labor market recovery.
– Persistent uncertainty over Bank of Canada (BoC) policy moves, especially in light of diverging inflation expectations.
### Factors Affecting Risk Sentiment Include:
– Continued debates around fiscal stimulus in the US and Canada.
– Geopolitical developments, including tensions surrounding China and global trade.
– Progress in COVID-19 vaccine distribution and mutation concerns.
## Technical Outlook for USD/CAD
Technical charts show that USD/CAD remains within a relatively narrow trading band. As of the middle of September, the pair was hovering close to 1.3170, only slightly below the 1.3200 psychological level. Momentum indicators on the daily chart suggested a lack of a clear directional bias in near-term trends.
Scotiabank analysts noted that there’s limited momentum to push the pair meaningfully higher or lower in the absence of a significant catalyst. Based on technical patterns:
– Immediate resistance lies around 1.3210–1.3240 levels
Read more on USD/CAD trading.