**USD/CAD Weekly Forecast: Canadian Dollar Struggles Amid Weaker Oil Prices and Sluggish Trade Data**
*Based on the original article by Kenny Fisher at Forex Crunch.*
The USD/CAD currency pair witnessed notable volatility last week, reflecting broader macroeconomic shifts, including global oil market movements and mixed economic signals from both the United States and Canada. The Canadian dollar, closely tied to crude oil dynamics and trade data, came under pressure as weaker economic indicators and sliding oil prices pulled the currency lower against the US dollar.
This comprehensive USD/CAD forecast explores the main forces currently driving the exchange rate, economic data releases that impacted the markets last week, and what traders should watch in the upcoming session. The outlook also incorporates forecasts from a variety of sources to provide a broad perspective on the currency pair.
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## Summary of Recent Developments
### USD/CAD Fall and Rebound
– Last week began with the Canadian dollar strengthening slightly against the US dollar as traders looked to risk assets.
– However, USD/CAD reversed course by midweek, climbing from around 1.3600 to highs above 1.3740 as oil prices tumbled and trade data disappointed.
– The pair closed the week stronger, driven largely by weakness in the Canadian economy rather than renewed USD strength.
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## Key Factors Impacting USD/CAD
### 1. Oil Prices and the Canadian Dollar
Canada is the fourth-largest oil producer globally, making its currency highly correlated with crude oil prices.
– West Texas Intermediate (WTI), the US oil benchmark, dropped approximately 8% last week amid fears of slowing global demand and rising inventories.
– The sharp decline in oil prices translated into lower foreign currency flows into Canada, weakening the CAD.
– Analysts raised concerns over continued economic slowdown in China, which pressured global commodity demand. As China is one of the top consumers of oil, any reduction in Chinese economic activity often depresses oil prices.
– Geopolitical uncertainty in the Middle East and mixed signals from OPEC+ regarding future supply cuts added further ambiguity.
**Implications**:
Reduced oil revenues could further weigh on Canada’s GDP and government revenues, throttling market confidence in the CAD unless oil stabilizes.
### 2. Canadian Trade Balance Woes
Canada’s international trade data for August further dampened sentiment around the CAD.
– Figures released by Statistics Canada showed a trade deficit of CAD 2.9 billion in August, well above expectations.
– Both exports and imports fell for the month as global demand weakened and domestic manufacturing slowed.
– Key sectors like energy and autos recorded lower export volumes, indicating fragile external demand for Canadian goods.
### 3. Robust US Economic Data
The US dollar remains supported by strong macroeconomic fundamentals, which positively impacted the USD/CAD pair last week.
– The US ISM Manufacturing PMI rose slightly to 49.0 in September, suggesting that the contraction in the sector may be moderating.
– The ISM Services PMI came in at 53.6, above market expectations, signaling continued robust activity in the service sector.
– Job growth remained solid, with Non-Farm Payrolls (NFP) data showing an increase of 336,000 jobs in September, double the market consensus.
**Federal Reserve Outlook**:
– The Fed’s rate trajectory has not changed significantly, but rising yields on US Treasuries bolster expectations that the central bank may hold rates higher for longer to combat inflation.
**Implications for USD/CAD**:
Higher Treasury yields typically support the USD by attracting capital inflows, and the relative strength of the US economy compared to Canada adds to positive USD sentiment.
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## Outlook for the Canadian Dollar
### Bank of Canada (BoC) Policy Path
– The BoC has kept its benchmark interest rate at 5.00% in recent months, pausing rate hikes amid signs of cooling inflation.
– Governor Tiff Macklem has suggested more rate hikes are possible if inflation re-acceler
Read more on USD/CAD trading.