Canadian Dollar backslides, driven by a declining in Crude Oil

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On Monday, the Canadian Dollar (CAD) faced downward pressures across the board against major currencies, primarily driven by a declining Crude Oil market as the second week of 2024 commenced.

This week’s economic calendar for the Canadian Dollar features only two major data releases: the Canadian International Merchandise Trade Balance and Building Permits, both due on Tuesday. The market is still adapting to last Friday’s US Nonfarm Payrolls (NFP) report, which included significant revisions to previous data.

Economic figures from Canada are showing signs of weakening. The forecast for Tuesday’s Canadian International Merchandise Trade Balance is a decrease from 2.97 billion to 1.8 billion for November. Similarly, Building Permits for November in Canada are expected to drop from 2.3% to 2.0%.

In other market news, the Canadian Dollar is weakening due to a pessimistic outlook for Crude Oil demand. The drop in Crude Oil prices is affecting the Loonie, especially with fluctuating prices in the Middle East. Saudi Arabia has reduced prices for its crude oil to Asian trading partners, while production cuts from the Organization of Petroleum Exporting Countries (OPEC) are countered by a decrease in demand from key markets like China. Meanwhile, US Crude Oil production remains high, near 13 million barrels per day.

Expectations of a global oil undersupply are being challenged as the actual scenario has not materialized despite months of production cuts. Last Friday’s US NFP data influenced market expectations regarding Federal Reserve rate cuts, as the data surpassed expectations despite downward revisions to previous periods. A strong employment scenario in the US decreases the likelihood of imminent rate cuts by the Federal Reserve.

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Key US data this week includes the US Consumer Price Index (CPI) inflation report on Thursday. The headline annualized US CPI inflation for December is anticipated to rise slightly from 3.1% to 3.2%.

As for the Canadian Dollar’s performance today, the following table shows the percentage change of the CAD against major currencies. The Canadian Dollar was notably weaker against the Japanese Yen.

The technical analysis reveals that the Canadian Dollar slid to a three-week low amid soft bids for barrels, with the USD/CAD pair testing the 1.3400 level. The Loonie has weakened against the Japanese Yen, the Swiss Franc, the Pound Sterling, and the Euro. Against the US Dollar, the CAD’s losses were limited but still trending downwards as the USD/CAD pair reached towards 1.3400. From late December, the Canadian Dollar has declined by 1.75% against the US Dollar.

The US Dollar has been consistently strong against the CAD for the past seven trading days, with Monday expected to mark the eighth consecutive day of decline for the CAD. An upward trend in USD/CAD faces resistance from the 200-day Simple Moving Average near the 1.3500 mark, while a downward trend might test five-month lows below 1.3175.


USD/CAD Hourly Chart

USD/CAD Hourly Chart