USD/CAD falls for sixth time in seven days. What’s next?

The USD/CAD pair is back to where it was in early April, as today’s rise in oil prices combined with weeks of broad USD selling to pressure the pair lower.

The Canadian government today announced tariffs on electric vehicles, aluminum and steel from China, but these moves were leaked in advance and are not market-driving.

Helping to lift the Canadian dollar today — on a day when other commodity currencies were down — was a 3.2% jump in oil prices after Libya halted all exports and production. Depending on how long that lasts, it could squeeze global supply and serve as a lifeline for OPEC+, which is struggling to balance the market.

In the bigger picture, the market is reconsidering the idea that North American central banks may be diverging. The U.S. economy is certainly stronger than Canada’s, but recent comments from Federal Reserve Chairman Jerome Powell highlight that the U.S. is ready to cut interest rates — perhaps aggressively — even with current growth prospects strong.

Canada has already cut interest rates by 25 basis points twice and is expected to continue at the same pace but this comes amid a significantly weaker economy. A big part of the Canadian dollar’s ​​downturn is the housing market collapse but a Fed rate cut would also lower global interest rates and could help avert a crisis next year, removing significant risk.

Meanwhile, a synchronized global shift toward lower interest rates is an attractive prospect for some who believe this could be the start of a global growth cycle. That’s odd, given that stock markets are near record highs, but it’s also compelling—but only if China steps up its efforts with real stimulus.

Technically, the pair is oversold now and the slight drop in other commodity currencies is a short-term red flag. US stocks are also very close to resistance from all-time highs and that could slow down the risk trade. Today, the 1.35 level has been broken and that will be key for a close but if we hold at this level, watch the 1.3425 level and support just below.

Any bounce would target the old range bottom at 1.3586 and the 200-day moving average at 1.3590.