USD/CAD drops below 1.3600 on soft US dollar and higher oil prices

• USD/CAD drops 100 pips on Tuesday, extending its weekly losses to almost 2%.
• Broad US dollar weakness and high crude oil prices undermine the USD/CAD, a tailwind for the CAD.
• The US economy is slowing as the Fed wishes, as portrayed by the JOLTs report missing estimations.
• Fed policymakers continue to emphasize the need for higher rates amidst recent US data showing the economy is slowing.

The USD/CAD extended its losses for two-consecutive trading days, courtesy of a soft US dollar and rising oil prices, which underpinned the commodity-linked Loonie amidst a risk-on impulse.

Therefore, the USD/CAD is trading at 1.3553 after hitting a daily high of 1.3664, at around the 200-hour EMA, before the major tumbled towards the 1.3530s area.

On Tuesday, investors’ sentiment improved. US economic data released by the US Department of Labor reported that vacancies edged lower from around 11.239M in July to 10.053M in August. In the meantime, the US Department of Commerce revealed that factory orders for August remained unchanged at 0%, after July’s 1% fall.

After Monday’s ISM, PMI reported that manufacturing activity slowed but remained in expansionary territory. Sub-components showed that the price index dropped while new orders began to fall.

A slew of Fed officials, led by the New York Fed John Williams, crossed newswires since Monday. Williams said that the Fed’s job is “not yet done” while adding that policy “is not yet in a restrictive place for growth,” emphasizing the need for higher rates.

Atlanta’s Fed President Raphael Bostic said that supply chains are putting upward pressure on prices, while Richmond’s Barkin said that a strong dollar has potential spillover effects on the global economy but stressed that the Fed is focused on the US economy.

Of late, the San Francisco Fed Mary Daly said that the Fed is committed to getting inflation low and echoed the NY Fed Williams comments of needing additional rate hikes.

In the meantime, one of the newest Fed board members, Philip Jefferson, said, “Restoring price stability may take some time and will likely entail a period of below-trend growth.”

Aside from this, missing Canadian economic data reported left USD/CAD traders adrift to US dollar dynamics and commodity prices. The US Dollar Index is falling off the cliff after hitting a YTD high at 114.77, though it is down 1.27% at 110.246.

Contrarily, US crude oil prices surged on speculations that OPEC+ could lower global oil production by as much as 2 million barrels per day. Hence, WTI jumped and reached a daily high at around $86.95, shy of the $87 mark, up by more than 3.60%. The cartel is scheduled to meet in October 5.

Therefore, the USD/CAD continued its downtrend, though lately bounced off the lows at around 1.3521 toward the S1 daily pivot point.

What to watch

The Canadian docket will feature Building Permits and Trader Balance on Wednesday, followed by the Bank of Canada (BoC) Tiff Macklem’s speech on Thursday. On the US front, the calendar will reveal US S&P Global PMIs, and the ADP Employment Change report, alongside Fed speaking.

USD/CAD Key Technical Levels