Canadian Dollar falls to near 18-month lows as oil prices decline
- USD/CAD remains close to an 18-month high of 1.4293 as the Canadian Dollar (CAD) struggles amid lower oil prices.
- JPMorgan reports Middle East crude exports reached 17.5 million barrels daily, near 98% of pre-war volumes, while refined products hit 58%.
- Softer employment data hurts the US Dollar by lowering expectations for a Federal Reserve interest rate hike in October.
USD/CAD extends its gains for the third consecutive day, trading around 1.4270 during European hours on Tuesday. The pair remains close to freshly reached 18-month highs as the commodity-linked Canadian Dollar (CAD) struggles amid lower oil prices. Crude oil prices are under pressure as evidence builds that Middle East crude exports are rebounding toward pre-war levels.
According to JPMorgan, crude shipments from the region have recovered to 17.5 million barrels per day, roughly 98% of pre-war volumes, while refined product flows like diesel and gasoline have reached 3 million barrels per day, or 58% of normal capacity. Gulf producers continue to move expanding supply through the Strait of Hormuz despite ongoing maritime risks, with Iraq actively seeking extra vessels to transport its cargoes through the strategic transit route.
Further underscoring the easing supply constraints, Kuwait reported that its oil production has returned to approximately 75% of pre-conflict levels. Meanwhile, Saudi Arabia has sharply slashed official selling prices for its flagship crude grade to Asian buyers, signaling growing physical availability and a progressively loosening global oil market.
However, the upside of the USD/CAD pair could be restrained as the US Dollar (USD) faces challenges amid softer US employment data, which has significantly dampened expectations for a Federal Reserve (Fed) interest rate hike in October.
A drop in crude oil prices further relieved inflation concerns and eased pressure on monetary policy tightening. Reflecting this shifting sentiment, the CME FedWatch Tool shows that traders are currently pricing in more than a 78% probability that the Fed will keep interest rates on hold at its upcoming meeting.
Technical Analysis:
In the daily chart, USD/CAD trades at 1.4270, extending its advance with a clear bullish near-term bias as price holds above both the nine- and 50-period Exponential Moving Averages (EMAs). The alignment of shorter and longer EMAs below spot reinforces a supported tone, while the 14-day Relative Strength Index (RSI) at 78.96 signals overbought conditions, suggesting the rally is stretched but still driven by strong upside momentum. The FXS Fed Sentiment Index at 137.58 remains elevated, hinting that broader policy expectations continue to underpin demand for the pair.
On the topside, the next significant resistance is the horizontal barrier at 1.4794, which stands as a medium-term upside objective should buyers keep control. On the downside, initial support is seen at the nine-period EMA at 1.4202, ahead of a deeper structural floor at the 50-period EMA near 1.4022, where a pullback could find fresh buying interest as long as the broader bullish configuration remains intact.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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