Canadian Dollar Advances Despite Falling Oil Prices

December Fed rate hike prospects, strengthened by robust jobs data, may support gains in USD/CAD.
Forthcoming US CPI and PPI releases are in focus as traders seek fresh clues on central bank policy.
The commodity-linked Canadian dollar remains under pressure as crude oil prices slide.

1.4110 is the approximate level for USD/CAD in Monday's Asian session. The pair is retreating after two consecutive days of gains. Further losses could be limited, however, if the US Dollar (USD) recovers. Strong US labour figures have increased the likelihood of a December Federal Reserve rate hike, potentially supporting the currency. For additional guidance on the Fed's policy outlook, investors are monitoring Tuesday's US Consumer Price Index (CPI) release and Friday's Producer Price Index (PPI) report.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

The likelihood of a further 25-basis-point rate increase at December's Federal Open Market Committee (FOMC) meeting now exceeds 78%, according to the CME FedWatch tool. Strong US jobs data are lending substantial support to the Greenback. October Nonfarm Payrolls (NFP) rose by 165,000, comfortably exceeding the consensus forecast of 65,000 after September's revised increase of 60,000. At the same time, the Unemployment Rate slipped to 4.1%, below the expected 4.2%.

Falling oil prices are also putting pressure on the commodity-linked Canadian Dollar (CAD), which could provide support for USD/CAD. Crude declined after US President Donald Trump described further military strikes on Iran as "highly unlikely," as long as progress on Iran's nuclear programme continues and the Strait of Hormuz stays open. He also attributed the Republicans' recent midterm election losses in part to the unpopular Middle East conflict and the higher energy costs it caused.

Speaking to CNN by phone in an interview reported by Reuters, Trump reiterated that a firm agreement signed by Iran would probably remove the need for further military action. No large-scale US military operations have taken place, despite earlier suggestions that major attacks could resume after the midterms. Iran, meanwhile, has threatened to target US and Israeli assets in retaliation for any future strikes.

1.4110: USD/CAD Technical Outlook

At 1.4110 on the daily chart, USD/CAD remains above its 50- and nine-day Exponential Moving Averages (EMAs). That positioning points to a favourable near-term outlook as the recovery from recent lows continues. The 14-day Relative Strength Index (RSI) stands at 55.3. Although it has retreated from earlier overbought extremes, its neutral-to-positive reading suggests that bullish momentum persists without appearing overstretched.

The 50-day EMA at 1.4054 provides the first downside support, with the nine-day EMA at 1.4047 just below it. Together, they form a narrow demand zone that supports the short-term trend while it remains intact. The supplied dataset identifies no clear resistance levels. Traders would therefore likely watch psychological levels and recent swing highs above 1.4111 for evidence that the advance is losing momentum. A daily close below the EMA cluster, by contrast, would weaken the bullish outlook and indicate a deeper correction.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Canadian Dollar: Key Questions Answered

Which factors matter most for the Canadian Dollar?

Bank of Canada (BoC) interest rates, oil prices, economic conditions, inflation and the trade balance are the principal drivers of the Canadian Dollar (CAD). Oil is Canada's largest export, while the trade balance measures the difference between the value of exports and imports. Investor sentiment also matters: a willingness to buy riskier assets, known as risk-on, generally supports CAD, whereas risk-off describes a preference for safe havens. The strength of the US economy is another important influence, given that the US is Canada's largest trading partner.

Why do Bank of Canada decisions matter for the Canadian Dollar?

By setting the interest rate at which banks can lend to each other, the Bank of Canada (BoC) influences borrowing rates across the economy and, in turn, the Canadian Dollar. Its primary objective is to keep inflation within 1-3%, raising or lowering rates as needed. Relatively high interest rates generally support CAD. The Bank of Canada can also adjust credit conditions through quantitative easing or tightening. Easing tends to weaken CAD, while tightening tends to strengthen it.

Why are oil prices important for the Canadian Dollar?

As Canada's largest export, petroleum gives oil prices a significant and often immediate influence on the Canadian Dollar. Rising oil prices generally lift CAD by increasing aggregate demand for the currency. Falling prices tend to have the reverse effect. More expensive oil also increases the likelihood of a trade surplus, providing another source of support for CAD.

Why can inflation figures move the Canadian Dollar?

Inflation traditionally carried negative implications for currencies because it erodes the value of money. With cross-border capital controls relaxed in modern times, however, the effect has often been the reverse. Higher inflation tends to prompt central banks to raise interest rates, attracting capital from global investors seeking better returns. Those inflows increase demand for the domestic currency, which for Canada is the Canadian Dollar.

Why does economic data matter for the Canadian Dollar?

By revealing the economy's health, macroeconomic releases can affect the Canadian Dollar's direction. Relevant measures include GDP, manufacturing and services PMIs, employment figures and consumer sentiment surveys. Economic strength supports CAD both by drawing in foreign investment and by potentially encouraging the Bank of Canada to raise interest rates, strengthening the currency. Weak figures, in contrast, are likely to push CAD lower.