Canadian Dollar steadies as Oil recovery offsets US Dollar's limited gains

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• The Canadian Dollar steadies as Oil prices recover, providing support for commodity-linked currencies.
• OPEC+’s smaller-than-expected production hike eases concerns over excess supply.
• Political gridlock in Washington and expectations of Federal Reserve rate cuts limit US Dollar gains.

The USD/CAD exchange rate remains stable on Monday, hovering around 1.3950 at the time of writing. The cross edged lower earlier on Monday as the commodity-linked Canadian Dollar (CAD) gained support from the rebound in Oil prices, before stabilizing. As Canada is the largest Oil exporter to the United States (US), the improvement in energy markets naturally benefits its currency.

Oil prices advanced after the Organization of the Petroleum Exporting Countries and its allies (OPEC+) announced a modest production increase of 137,000 barrels per day (bpd) for November, below market expectations. The move, interpreted as a sign of caution from the group, helps ease concerns about oversupply.

At the same time, expectations of monetary easing from the Federal Reserve (Fed) are weighing on the Greenback. The environment of looser monetary policy boosts risk appetite and caps potential upside for the US Dollar (USD).

Meanwhile, the lack of a budget agreement in the US Congress continues to fuel political uncertainty. The Senate’s repeated failure to pass spending proposals extends the partial government shutdown, delaying key economic data releases, including September’s Nonfarm Payrolls (NFP) report initially scheduled for last Friday.

USD/CAD technical analysis: The rally pauses

USD/CAD 4-hour chart. Source: FXStreet.

The USD/CAD pair continues to consolidate in a triangle visible on the 4-hour chart, highlighting a pause after the recent rally from the September 17 low at 1.3773 and the lack of a short-term trend.

A breakout from the triangle, currently between 1.3945 and 1.3965, could trigger a directional move. On the upside, USD/CAD could test its recent October 2 peak at 1.3986, while on the downside, the cross could regain the September 30 lows at 1.3897.