USD/CAD Price Analysis: The potential support level is located near 1.3600

July 9, 2024 8:31 am

  • USD/CAD trades on a weaker note near 1.3635 in Tuesday’s early European session. 
  • The pair maintains a negative stance below the 100-period EMA, with the bearish RSI momentum indicator. 
  • The initial contention level will emerge near 1.3600; the first upside barrier is seen at 1.3650.

The USD/CAD pair remains on the defensive around 1.3635 during the early European session on Tuesday. The Greenback weakens on the back of the potential September rate cut from the US Federal Reserve (Fed) after employment data last week indicated a cooling US labor market. 

According to the 4-hour chart, USD/CAD keeps the bearish vibe unchanged below the key 100-period Exponential, Moving Average (EMA). Furthermore, the downward momentum is supported by the Relative Strength Index (RSI), which stands near in the bearish zone near 45.70. This indicates that the path of least resistance level is to the downside.    

The potential support level for the pair will emerge near 1.3600, portraying the confluence of the lower limit of the Bollinger Band and the psychological level. A breach of this level will see a drop to 1.3556, a low of April 10. The additional upside filter to watch is 1.3515, a low of April 1. 

On the other hand, the immediate resistance level is seen at 1.3650, the upper boundary of the Bollinger Band. A decisive break above this level will pave the way to 1.3672, the 100-period EMA. Any follow-through buying could see a rally to 1.3712, a high of June 27. 

USD/CAD 4-hour chart

Canadian Dollar FAQs

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.

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