USD/CAD slides further below 1.3400, lowest since September on sustained USD selling

• USD/CAD plummets to a near three-month low and is pressured by a combination of factors.
• The Fed’s dovish shift, along with the risk-on mood, continues to weigh heavily on the USD.
• The recent goodish recovery in Oil prices underpins the Loonie and contributes to the decline.

The USD/CAD pair remains under some selling pressure for the third successive day on Friday and drops to a near three-month low during the early part of the European session. Spor prices currently trade around the 1.3385 area, down 0.15% for the day, and seem vulnerable to slide further amid a bearish sentiment surrounding the US Dollar (USD).

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, plummets to over a four-month low in the wake of the Federal Reserve’s (Fed) dovish pivot earlier this week. The US central bank on Wednesday signalled an end to its monetary policy tightening cycle and pencilled in at least three 25 bps rate cuts in 2024. Apart from this, the prevalent risk-on environment, as depicted by an extension of the rally in the global equity markets, exerts additional pressure on the safe-haven buck and is seen weighing on the USD/CAD pair.

However, the upbeat US macro data released on Thursday pointed to a resilient economy and raised doubts about an early policy easing by the Federal Reserve (Fed), in March 2024. This leads to a modest recovery in the US Treasury bond yields, albeit does little to impress the USD bulls. Meanwhile, Crude Oil prices, which tend to influence demand for the commodity-linked Loonie, struggle to capitalize on a two-day-old recovery move from the lowest level since late June touched earlier this week, though remain on track for the first weekly rise in two months.

A bullish forecast from the International Energy Agency (IEA) on Oil demand for next year continues to act as a tailwind for the black liquid. This further contributes to the offered tone surrounding the USD/CAD pair and supports prospects for a further near-term depreciating move. Market participants now look forward to the US economic docket, featuring the Empire State Manufacturing Index, Industrial Production data and flash PMI prints for December. This, along with Oil price dynamics, should produce short-term trading opportunities around the USD/CAD pair.

Technical levels to watch