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

USD/CAD is back to where it was in early April as today’s lift in oil prices combines with weeks of broad US dollar selling to squeeze the pair lower.

Today, Canada’s government announced China tariffs on EVs, aluminum and steel but those moves were leaked in advance and are not market movers.

What’s helping to lift the loonie today — on a day with other commodity currencies lower — is the 3.2% rise in oil prices after Libya halted all its 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 rethinking the idea that central banks in North American could diverge. For sure the US economy is stronger than Canada but the latest comments from Fed Chair Jerome Powell highlight that the US is ready to cut — perhaps aggressively — even with a solid current growth outlook.

Canada has already cut rates 25 bps twice and is expected to continue at that cadence but it’s coming with a materially weakening economy. A big part of the CAD-bear case is a housing rout but the Fed also cutting rates will bring down global rates and could help stave off a crunch in the year ahead, taking out a big tail risk.

At the same time, the global synchronized shift towards rate cut is an alluring prospect for some who think this could be the start of the global growth cycle. That’s odd, given stock markets near records but it’s also compelling — but only if China steps up with real stimulus.

Technically, the pair is oversold now and the small slump in other commodity currencies is a red flag in the short term. US equities are also very close to the resistance from the all-time highs and that could slow the risk trade. Today, the 1.35 level broke and that will be key into the close but if we hold here, then watch 1.3425 and the support just below.

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

This article was written by Adam Button at www.forexlive.com.