Potential Retest of the 1.45 Level USD/CAD
Declining oil prices, a robust dollar, and disparities in interest rates may drive the USD/CAD pair to revisit the 1.45 mark.
As a significant oil exporter, Canada's currency is tightly linked to oil prices. A marked decrease in crude oil prices, resulting from easing geopolitical tensions and reduced demand, could devalue the Canadian dollar.
In the past month, NYMEX crude oil futures have shown a consistent downward trend, with the COT report indicating that large institutions and hedge funds are pessimistic, increasing their short positions in these futures.
As of late November 2024, the Federal Reserve's target range for the federal funds rate is set at 5.25%–5.50%. Meanwhile, the Bank of Canada has cut its overnight rate to 3.75%, with the bank rate at 4.0% and the deposit rate at 3.75%. This results in an interest rate differential of about 1.5% to 1.75% favoring the U.S. dollar, bolstering its strength against the Canadian dollar in the foreign exchange market.
The ongoing upward trend in the USD/CAD pair, fueled by these factors, could lead the pair to challenge the critical 1.45 level once again.
A x1.5 ATR stop loss from current pivot zone or a drop below 1.35 would invalidate the trade. You can put on a tighter ATR stop loss if trading on daily or 8hr/4hr to improve risk : reward.
https://www.tradingview.com/chart/SUiBxPBY/?symbol=FOREXCOM%3AAUDUSD
As a significant oil exporter, Canada's currency is tightly linked to oil prices. A marked decrease in crude oil prices, resulting from easing geopolitical tensions and reduced demand, could devalue the Canadian dollar.
In the past month, NYMEX crude oil futures have shown a consistent downward trend, with the COT report indicating that large institutions and hedge funds are pessimistic, increasing their short positions in these futures.
As of late November 2024, the Federal Reserve's target range for the federal funds rate is set at 5.25%–5.50%. Meanwhile, the Bank of Canada has cut its overnight rate to 3.75%, with the bank rate at 4.0% and the deposit rate at 3.75%. This results in an interest rate differential of about 1.5% to 1.75% favoring the U.S. dollar, bolstering its strength against the Canadian dollar in the foreign exchange market.
The ongoing upward trend in the USD/CAD pair, fueled by these factors, could lead the pair to challenge the critical 1.45 level once again.
A x1.5 ATR stop loss from current pivot zone or a drop below 1.35 would invalidate the trade. You can put on a tighter ATR stop loss if trading on daily or 8hr/4hr to improve risk : reward.
https://www.tradingview.com/chart/SUiBxPBY/?symbol=FOREXCOM%3AAUDUSD
Note
Trump vows tariffs against Mexico and Canada, pushing the pair higher and closer to the 1.45 target. USD/CAD up 1% in under an hour.Note
Reuters predicting an 80% chance of a half percentage point rate cut by the Bank of Canada on December 11th following lackluster jobs data. The rate cut would technically weaken the Canadian dollar further, adding fuel to the trading thesis. However, I am on the lookout for potential signs of resistance, reversals, or priced in events. Oil continues to dive, weaking the export/commodity reliant CAD further.
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