Canadian Dollar advances even as oil prices fall

USD/CAD could advance as robust jobs figures raise the likelihood of a Fed rate hike in December.
Further clues on central bank policy are in focus as traders look ahead to the US CPI and PPI releases.
The commodity-linked Canadian dollar remains under pressure as crude oil prices slide.

USD/CAD retreats following two days of advances, hovering near 1.4110 in Monday's Asian session. The decline could nevertheless be limited by a possible recovery in the US Dollar (USD), with robust US labour figures increasing the likelihood of a Federal Reserve rate hike in December. For further indications of the Fed's forthcoming policy moves, investors are turning their attention to the US Consumer Price Index (CPI) release on Tuesday and the Producer Price Index (PPI) report on Friday.

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

Strong US employment data are lending substantial support to the Greenback, while the CME FedWatch tool now puts the likelihood of another 25-basis-point rate hike at December's Federal Open Market Committee (FOMC) meeting at above 78%. October Nonfarm Payrolls (NFP) rose by 165,000, comfortably exceeding the consensus forecast of 65,000 and following September's revised reading of 60,000. At the same time, the Unemployment Rate slipped to 4.1%, below the expected 4.2%.

Weakness in oil could also underpin USD/CAD by putting pressure on the commodity-linked Canadian Dollar (CAD). The fall in crude followed remarks by US President Donald Trump that additional military strikes on Iran are "highly unlikely," as long as progress on Iran's nuclear programme continues and the Strait of Hormuz stays open. According to Trump, the unpopular Middle East conflict and the resulting rise in energy costs also played a part in the Republicans' recent midterm election defeats.

Further military action would probably not be needed if Iran signs a firm agreement, Trump reiterated in a telephone interview with CNN, as reported by Reuters. Although he had previously suggested that major attacks could resume after the midterms, the US has not launched any large-scale military operations. Iran, meanwhile, has warned that any further strikes would prompt retaliation against US and Israeli assets.

Technical Analysis: Can USD/CAD Maintain Its Bullish Bias?

A constructive near-term outlook remains evident on the daily chart, where USD/CAD is trading at 1.4110 above both its 50- and nine-day Exponential Moving Averages (EMAs) as the recovery from recent lows continues. At 55.3, the 14-day Relative Strength Index (RSI) has retreated from earlier overbought extremes. Its neutral-to-positive reading nonetheless indicates that bullish momentum persists without appearing overstretched.

The first downside support comes from the 50-day EMA at 1.4054, with the nine-day EMA close behind at 1.4047. Together, these levels create a narrow demand zone that supports the short-term trend while it remains intact. As the supplied dataset offers no clear resistance levels, traders would likely watch psychological levels and recent swing highs above 1.4111 for evidence that the advance is tiring. Conversely, a daily close below the EMA cluster would weaken the bullish outlook and point to a deeper correction.

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

Canadian Dollar: Frequently Asked Questions

Which Factors Have the Greatest Influence on the Canadian Dollar?

Interest rates set by the Bank of Canada (BoC), oil prices, economic conditions, inflation and the trade balance are among the main influences on the Canadian Dollar (CAD). Oil is Canada's largest export, while the trade balance measures the difference between the value of the country's exports and imports. Investor sentiment also matters: a preference for riskier assets, known as risk-on, generally supports the CAD, whereas a search for safe havens reflects risk-off conditions. The strength of the US economy is another important consideration, given that the US is Canada's largest trading partner.

How Can Bank of Canada Policy Affect the Canadian Dollar?

By determining the interest rate at which banks lend to each other, the Bank of Canada (BoC) influences borrowing rates throughout the economy and, in turn, the Canadian Dollar. Its primary objective is to keep inflation within 1-3%, raising or lowering interest rates to achieve this. Higher rates relative to those elsewhere generally support the CAD. The Bank of Canada can also alter credit conditions through quantitative easing or tightening; easing tends to weigh on the CAD, while tightening tends to strengthen it.

Why Are Oil Prices Important for the Canadian Dollar?

As petroleum is Canada's largest export, changes in oil prices typically have an immediate effect on the Canadian Dollar. A rise in oil prices generally lifts overall demand for the currency and pushes the CAD higher, while falling prices tend to have the opposite effect. More expensive oil also increases the likelihood of a trade surplus, providing an additional source of support for the CAD.

How Can Inflation Figures Move the Canadian Dollar?

Inflation was traditionally viewed as unfavourable for a currency because it erodes the value of money. With the easing of cross-border capital controls in modern times, however, the relationship has in practice reversed. When inflation rises, central banks tend to raise interest rates, drawing capital from global investors looking for attractive returns. Those inflows boost demand for the domestic currency, which in Canada is the Canadian Dollar.

What Does Economic Data Mean for the Canadian Dollar?

The Canadian Dollar can respond to macroeconomic releases because they indicate the economy's underlying health. GDP, manufacturing and services PMIs, employment figures and consumer sentiment surveys can all shape the CAD's direction. A robust economy supports the currency by attracting foreign investment and potentially encouraging the Bank of Canada to raise interest rates, which would strengthen the CAD further. Weak economic readings, by contrast, are likely to weigh on the Canadian Dollar.