Canadian Dollar has mid-September lows in sight against broadly softer USD ahead of US data

• US election results put the USD under heavy pressure, drawing fresh selling in USD/CAD on Wednesday.
• Lower US bond yields and prospects for diplomacy with Iran add to the pressure on the safe-haven dollar.
• The Loonie draws support from the BoC’s hawkish stance, with traders awaiting direction from US economic releases.

US election results have fuelled broad weakness in the US Dollar (USD), leaving USD/CAD under renewed selling pressure on Wednesday and erasing its modest gains over the previous two days. In early European trading, the pair falls to around 1.3955, approaching last Friday’s one-and-a-half-month low as the fundamental outlook remains bearish.

Democratic majorities in both the House of Representatives and Senate following the US midterm elections sent the USD Index (DXY) to its lowest level in more than a month. The index measures the Greenback against a basket of currencies. Concerns that fiscal gridlock could constrain government spending and impede economic growth intensified political uncertainty following the result. As investors sought the safety of government debt, US bond yields fell further, adding to the dollar’s weakness.

Prospects for diplomacy with Iran are also putting pressure on the Greenback. Speaking to the Financial Times on Tuesday, President Donald Trump said the US had no immediate plans to strike Iran. A senior Iranian official, meanwhile, told Reuters that reopening the Strait of Hormuz would require sanctions to be waived and the US naval blockade to end. Iran’s Islamic Revolutionary Guard Corps (IRGC) also reported that four tankers had been destroyed after hitting mines south of the Strait of Hormuz.

With a geopolitical risk premium still supporting crude oil prices, the commodity-linked Loonie is receiving a further lift. The Canadian Dollar (CAD) also benefits from last week’s hawkish rate increase by the Bank of Canada (BoC), its first since July 2023. Together, these factors support the argument for further declines in USD/CAD. Expectations that the US Federal Reserve (Fed) will increase interest rates again in December could, however, discourage traders from positioning for more substantial USD losses.

Wednesday’s ADP private-sector employment report and ISM Services PMI could provide direction during the North American session. Greater attention will nevertheless be paid to Friday’s closely watched monthly employment figures from both the US and Canada, which will help shape the near-term path of USD/CAD. In the meantime, the underlying fundamentals suggest that attempted rebounds are more likely to attract selling.

USD/CAD trades on the daily chart

Technical Outlook Remains Mildly Constructive

A mildly positive near-term outlook persists while USD/CAD holds above pivotal support at the 200-day Simple Moving Average (SMA), at 1.3893, and the 61.8% Fibonacci retracement at 1.3947. A decisive breach of the latter, however, would bring lower support into view at the 78.6% retracement around 1.3852, followed by the structural low near 1.3731. Further selling beyond these levels would materially weaken the bullish case.

Any advance would first encounter resistance at the 50.0% retracement near 1.4013. A stronger obstacle follows at the 38.2% level around 1.4080, with the 23.6% retracement at 1.4163 next, before the cycle high near 1.4296.

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