Canadian Dollar advances to nearly two-week top vs. USD as traders await US NFP
- USD/CAD remains on the back foot for the fourth straight day amid a combination of factors.
- Rising Crude Oil prices underpin the Loonie and weigh on spot prices amid a weaker USD.
- Traders now look forward to the release of the US NFP report for some meaningful impetus.
The USD/CAD pair attracts fresh sellers following the previous day's two-way directionless price moves and slides back to a nearly two-week low, around the 1.3525-1.3520 region, during the Asian session on Wednesday. The US Dollar (USD) remains depressed amid bets for more rate cuts by the Federal Reserve (Fed) and concerns about the central bank's independence. Apart from this, renewed buying around Crude Oil prices underpins the commodity-linked Loonie, exerting additional pressure on the currency pair ahead of the crucial US Nonfarm Payrolls (NFP) report.
The daily chart for USD/CAD shows a decisive bearish trend, with price trading well below both the 50-day Exponential Moving Average (EMA) at 1.3757 and the 200-day EMA at 1.3854, confirming sustained downside pressure. The pair peaked near 1.3928 in early January before rolling over into a series of lower highs and lower lows. The Canadian Dollar is now extending into a third consecutive bullish session, driving USD/CAD down 0.25% on Tuesday to 1.3525, approaching the recent swing low near 1.3481. The selloff from the January highs has carved out a clean descending channel on the daily timeframe, with the 50 EMA curling lower and now converging with the 200 EMA, suggesting the potential for a bearish crossover. Support sits at 1.3481 (the chart low), followed by the psychological 1.3500 handle, while resistance clusters around 1.3600 to 1.3650, where prior support has flipped and the recent consolidation zone formed in early February.
The Stochastic Oscillator (14, 5, 5) continues to middle, having turned lower from the midline without reaching overbought territory, signaling that bearish momentum is reasserting after the brief early-February corrective bounce. That bounce stalled near 1.3700 and produced a series of rejection candles with long upper wicks, pointing to persistent selling interest on rallies toward the declining moving averages. The Loonie's three-day rally has been supported by stronger Canadian labour data, with January unemployment falling to 6.5% and wage growth holding firm at 3.3%, which has repriced Bank of Canada (BoC) rate cut expectations lower and kept Canadian yields relatively attractive. On the US side, Tuesday's weaker-than-expected Retail Sales (0.0% versus 0.4% forecast) and softer Employment Cost Index (0.7% versus 0.8%) have added further weight to the US Dollar. A daily close below 1.3481 would confirm a fresh leg lower and open the path toward the 1.3400 area, while any corrective rally would need to reclaim 1.3650 to shift the near-term bias.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Author
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
