USD/CAD finds some support near 1.4200 mark as Oil prices plunge to fresh multi-year low
- USD/CAD meets with a fresh supply on Wednesday, though it lacks follow-through.
- Bet for multiple Fed rate cuts in 2025 weigh on the USD and drag spot prices lower.
- Tumbling Crude Oil prices and domestic political uncertainty weigh on the Loonie.
The USD/CAD pair continues with its struggle to move back above the 100-day Simple Moving Average (SMA) and attracts fresh sellers during the Asian session on Wednesday. Spot prices, however, rebound a few pips from the 1.4200 neighborhood and remain confined in a broader trading range held since the beginning of this week amid mixed cues.
Crude Oil prices sink to a fresh multi-year low on the back of worries that US President Donald Trump's sweeping tariffs and the escalating US-China trade war would push the global economy into recession, which, in turn, could weaken fuel demand. Apart from this, the risk of a further escalation of US-Canada trade tensions, along with political uncertainty ahead of the Canadian snap election on April 28, undermines the commodity-linked Loonie and acts as a tailwind for the USD/CAD pair.
Meanwhile, investors ramped up their bets that the Federal Reserve (Fed) will cut rates multiple times this year amid persistent worries about a tariffs-driven US economic slowdown. This prompts some follow-through US Dollar (USD) selling for the second straight day and should keep a lid on any meaningful upside for the USD/CAD pair. Traders might also refrain from placing aggressive bets and opt to move to the sidelines ahead of the release of the FOMC meeting minutes later today.
Furthermore, investors this week will confront the release of the US Consumer Price Index (CPI) and the Producer Price Index (PPI) on Thursday and Friday, respectively. The crucial data should provide cues about the pace of future interest rate cuts by the Fed, which, in turn, will drive the USD and provide some meaningful impetus to the USD/CAD pair. In the meantime, trade-related developments and Oil price dynamics might produce short-term trading opportunities around the currency pair.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
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Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
