Will the Canadian Dollar test mid-September lows against a broadly weaker USD as traders await US data?

• Fresh selling hits USD/CAD on Wednesday, with the US Dollar under heavy pressure following the US election results.
• The safe-haven US Dollar faces further headwinds from falling US bond yields and optimism over diplomacy with Iran.
• The Loonie draws support from the BoC’s hawkish position, while traders await direction from US economic releases.

Renewed selling in USD/CAD on Wednesday erases the modest gains accumulated over the previous two days as broad US Dollar (USD) weakness dominates sentiment. During early European trading, the pair slips towards 1.3955, with the one-and-a-half-month low reached last Friday coming into view against an unfavourable fundamental backdrop.

A rush into safe-haven government bonds sent US yields lower again, adding to pressure on the US Dollar after the US midterm election results. Democrats won majorities in both the House of Representatives and Senate, prompting the USD Index (DXY), which measures the Greenback against a currency basket, to plunge to its lowest level in over a month. The result intensified political uncertainty, with investors concerned that potential fiscal gridlock could constrain government spending and impede economic growth.

Prospects for diplomatic engagement with Iran are also weighing on the Greenback. Speaking to the Financial Times on Tuesday, President Donald Trump said the US had no immediate plans to attack 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. Separately, Iran's Islamic Revolutionary Guard Corps (IRGC) reported that four tankers had been destroyed after hitting mines south of the Strait of Hormuz.

With the geopolitical risk premium still in place, crude oil prices receive support, benefiting the commodity-linked Loonie. The Canadian Dollar (CAD) also draws strength from last week's hawkish interest rate increase by the Bank of Canada (BoC), its first since July 2023. Together, these factors strengthen the case for further declines in USD/CAD. Expectations of another interest rate increase by the US Federal Reserve (Fed) in December, however, could discourage traders from positioning for steeper USD losses.

For fresh direction during the North American session, traders will turn to Wednesday's US releases, including the ADP private-sector employment report and the ISM Services PMI. More importantly, Friday brings the closely tracked monthly employment figures from both the US and Canada, which will shape the pair's near-term path. Until then, the fundamental backdrop indicates that attempts at a recovery are more likely to attract selling.

What does the USD/CAD daily chart show?

Technical Analysis: Can Support Hold?

A mildly positive near-term outlook remains intact for USD/CAD while the pair trades above the key 200-day Simple Moving Average (SMA) support at 1.3893 and the 61.8% Fibonacci retracement at 1.3947. A decisive fall through the latter, however, would bring lower support levels into focus: the 78.6% retracement around 1.3852, followed by the structural low near 1.3731. Sustained selling beyond these levels would materially weaken the bullish outlook.

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

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