**USD/CAD Weekly Forecast: Canadian Dollar Pressured by Falling Oil Prices and Weak Trade Data**
*Originally reported by Kenny Fisher at Forex Crunch*
The Canadian dollar came under notable selling pressure during the past trading week, as a combination of weakening crude oil prices and downbeat Canadian trade data weighed heavily on sentiment. On the other hand, the U.S. dollar gained momentum following generally strong U.S. economic indicators and some hawkish sentiment from Federal Reserve officials. This divergence in fundamental outlook between the two nations has pushed the USD/CAD currency pair to its highest levels in several weeks.
As traders assess the implications of softening global demand and domestic economic signals, the outlook for the loonie appears increasingly challenged heading into the final quarter of the year. Below we take a closer look at the key drivers behind the recent USD/CAD movement and offer a forecast for the week ahead.
## Summary of the Past Week
### USD/CAD Performance Over the Week
– The pair advanced steadily through the week, beginning close to the 1.3500 level and crossing above 1.3700 before ending the week around 1.3670.
– This marked the strongest weekly close for the U.S. dollar against the Canadian currency since earlier in the year.
– The move was primarily driven by weakness in the CAD rather than broad USD strength, although solid U.S. macroeconomic data did support the greenback.
## Key Canadian Economic Developments
### 1. September Trade Balance Undershoots Expectations
– Canada reported a trade deficit of CAD 0.987 billion in August, falling short of market expectations for a small surplus.
– Imports climbed by 3.8 percent, largely due to higher prices, while exports rose only 2.5 percent, exacerbated by weaker crude oil shipments.
– Energy exports, which traditionally support Canada’s trade balance, declined by 2.6 percent as oil prices softened and refining activity slowed.
### 2. Oil Prices Retreat From Recent Highs
– Crude oil, one of Canada’s top exports and a critical driver of the Canadian dollar, dropped more than 10 percent over the past two weeks.
– After approaching $95 per barrel in late September, WTI crude fell back toward the $82 mark, driven by:
– Worries about slowing demand amid rising interest rates
– Surprising builds in U.S. crude inventories, reflecting decreasing consumption
– A stronger U.S. dollar placing downward pressure on commodity prices
– The correlation between oil prices and the Canadian dollar continues to play a major role in USD/CAD price action.
### 3. Canadian Labor Market Cooling Slightly
– Statistics Canada reported that the country added just 63,800 jobs in September, lower than August’s 83,000.
– The unemployment rate ticked upward to 5.5 percent.
– Wage growth held steady at 5.0 percent, but signs of a gradually softening labor market are beginning to emerge, adding to the case for a more gradual monetary policy path by the Bank of Canada.
## U.S. Economic Landscape
### 1. Strong ISM Services PMI
– The ISM services index for September came in at 53.6, slightly down from 54.5 in August but still indicating robust expansion in the services sector.
– Business activity and new orders remained positive, showing continued resilience in the face of high interest rates.
– This print helped support expectations that the U.S. economy could avoid recession and maintain moderate growth into the year-end.
### 2. Hawkish Fed Rhetoric
– Comments by several FOMC members, including Governor Michelle Bowman, reinforced the Fed’s higher-for-longer narrative.
– While Fed officials held rates steady in September, they signaled one additional rate hike for 2025 and fewer rate cuts next year than previously forecast.
– The yield on the 10-year U.S. Treasury note climbed above
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