USD/CAD Under Pressure as Bears Target 1.3980: Market Eyes U.S. Economic Data and Treasury Auctions
By: Gregor Horvat (original author), Expanded and Rewritten for Depth and Context
The USD/CAD currency pair is trading on the defensive as the market transitions into a pivotal data-heavy week. Persistent selling pressure is pulling the pair closer to the key psychological and technical support area around 1.3980. The latest setbacks for the U.S. dollar reflect a confluence of factors including upcoming economic data, the U.S. Treasury auction cycle, and changing sentiment regarding the Federal Reserve’s monetary policy trajectory.
As of the latest trading session, the USD/CAD pair slipped to around 1.3710 before staging a modest rebound near the key pivot zone of 1.3740. These moves come amid broad-based U.S. dollar softness and increased strength in the Canadian dollar aided by rising oil prices.
Key Themes Driving USD/CAD Price Action
Several macroeconomic trends and fundamental catalysts are influencing USD/CAD’s movements:
1. U.S. Dollar Weakness
2. Canadian Dollar Correlation with Crude Oil Prices
3. Technical Resistance and Psychological Level of 1.3980
4. Traders Positioning Ahead of U.S. Durable Goods Orders and Housing Data
5. The Impact of U.S. Treasury Auction Cycle
Let’s explore each of these in-depth.
1. U.S. Dollar Weakness
The recent weakness in the U.S. dollar is multifaceted. Economic data over the past week has signaled that the U.S. economy may be entering a more sluggish growth phase. While inflation remains a concern, the Federal Reserve appears to be adopting a more cautious tone. Fed officials, including Chair Jerome Powell, have suggested that monetary policy is sufficiently restrictive, and that further tightening may not be necessary unless incoming data justifies it.
This cautious stance has weighed on U.S. Treasury yields across the curve, particularly the benchmark 10-year yield, which slipped from recent highs near 4.70 percent to below 4.50 percent. As yields decline, so does the greenback’s appeal, especially in USD pairs such as USD/CAD.
Investors now await confirmation from upcoming U.S. data before taking aggressive positions on the dollar, causing ranges to narrow and volatility to compress.
2. Canadian Dollar Correlation with Oil
The Canadian dollar, often viewed as a commodity-linked currency due to Canada’s status as a leading crude oil exporter, has gained support from higher energy prices. West Texas Intermediate (WTI) crude oil has rebounded above $83 per barrel amid escalating geopolitical tensions in the Middle East and tighter supply forecasts.
Oil’s rally offers a tailwind to the Canadian dollar since stronger oil prices boost Canada’s trade balance and overall economic growth. As WTI firms, the CAD benefits, naturally pushing USD/CAD lower. Last week’s inventory reports from the Energy Information Administration (EIA) showed a larger-than-expected decline in U.S. crude oil inventories, further buttressing oil bulls’ outlook.
3. Technical Outlook for USD/CAD
From a technical perspective, USD/CAD seems to be exhausted after testing key resistance levels around 1.3780 to 1.3800. Bears have regained control, dragging the pair below its 20-day and 50-day moving averages in short-order.
Key levels to watch:
Support:
– Initial support zone lies around 1.3680
– Stronger support is located near 1.3620
– Major psychological and technical support at 1.3500
– Longer-term trendline support near 1.3400 (if downside momentum intensifies)
Resistance:
– Near-term resistance at 1.3740
– Key resistance at 1.3780–1.3800 zone
– Break above 1.3800 could expose 1.3900
– Major breakout level remains at
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