USD/CAD climbs above 1.3770s on overall US dollar strength, falling oil prices

• USD/CAD marches 1.3770s due to a risk-on appetite and falling oil prices.
• US September Industrial Production surprisingly exceeded estimates, though Monday’s NY Fed Manufacturing Index contracted for the third month.
• Despite BoC’s rate hike cycle, Canada’s housing starts jumped to its highest levels in almost a year.

The USD/CAD trims some of its Monday’s losses and rises back above the 1.3700 figure after hitting a daily low of 1.3657, below the 20-day EMA, but recovered some ground amid a risk-on impulse, as shown by US equities rising. At the time of writing, the USD/CAD is trading at 1.3774, up by 0.43%.

USD/CAD climbs from under 1.3700, on falling oil prices, and some US dollar strength

Investors’ mood is upbeat, improving their appetite for risk-perceived assets. However, in the case of the USD/CAD, falling crude oil prices keep the loonie on the defensive vs. the greenback. Positive US Industrial Production in September, improving for the third consecutive month, underpinned the greenback.

The Federal Reserve reported that manufacturing production jumped 0.4% MoM, above 0.2% estimates by economists polled by Reuters. Regarding Capacity, Utilization ticked up 2 points, from 80% to 80.3%. Albeit manufacturing production was better than expected, Monday’s New York Fed Empire State Index fell for the third consecutive month, with the survey showing that businesses are pessimistic regarding the future economic outlook.

In the meantime, the US Dollar Index, a measure of the buck against six currencies, edges up 0.06%, at 112.132, underpinning the USD/CAD. Meanwhile, WTI plunges 3.30%, with US crude oil hitting $82.86 PB, a tailwind for the major.

Of late crossing newswires was the Atlanta Fed President Raphael Bostic, who said the Fed couldn’t solve all the problems causing actual inflation.

On the Canadian front, housing starts jumped 11% in September, its highest level in 10 months. The SAAR of housing starts rose by 299,589 units in the last month from an upwardly revised 270,397. Even though data is positive, the Bank of Canada (BoC) BOS survey showed that companies upwardly revised their inflation expectations in Q3, though long-term inflation remains anchored to the BoC’s target.

Analysts at TD Securities are pricing in another rate hike by the BoC. They noted, “While the Bank can draw some comfort that long-term inflation expectations have not become unanchored, we do not expect them to change course amid further erosion to shorter-term measures and ongoing price pressures, particularly in light of recent hawkish comments from Governor Macklem. We think this report supports a 50bp move in October, but recent BoC rhetoric very clearly suggests a 75bp move is in play.”

USD/CAD Key Technical Levels