Skip to Content
News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

Free Trading Guides
Subscribe
Please try again
Select

Live Webinar Events

0

Economic Calendar Events

0

Notify me about

Live Webinar Events
Economic Calendar Events

H

High

M

Medium

L

Low
More View More
Canadian Dollar Forecast: USD/CAD Primed for Reversal with Oil

Canadian Dollar Forecast: USD/CAD Primed for Reversal with Oil

Rich Dvorak, Analyst

Share:

What's on this page

CANADIAN DOLLAR FORECAST: USD/CAD PRICE DUE FOR REVERSAL AS CRUDE OIL DROPS DESPITE OPEC+ DEAL, BANK OF CANADA MEETING LOOMS & CORONAVIRUS RECESSION RISK LINGERS

  • The Canadian Dollar looks like it might come back under pressure with crude oil after the OPEC+ deal disappointed markets
  • USD/CAD price action eyes trader sentiment surrounding coronavirus recession risk and a scheduled monetary policy update from the Bank of Canada
  • Spot USD/CAD could ricochet higher off a major technical support level after falling nearly 700-pips in three weeks

The Canadian Dollar participated in a broad-based rally against the US Dollar last week. Growing coronavirus optimism, driven by a deceleration in new COVID-19 cases, intensive care admissions and deaths, likely contributed to the protracted US Dollar pullback and 1.5% decline in USD/CAD last week.

USD/CAD Mixed
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 20% -23% -7%
Weekly 0% 14% 7%
Learn how to use sentiment in your trading strategy
Get My Guide

USD/CAD price action now trades roughly 5% below its year-to-date high printed on March 19 – the strongest reading notched by the major currency pair since early 2016. The Canadian Dollar may surrender recent gains against its USD peer, however, as crude oil prices drop despite the OPEC+ deal.

USD/CAD & CRUDE OIL PRICE CHART: 4-HOUR TIME FRAME (DECEMBER 2019 TO APRIL 2020)

USDCAD Price Chart Canadian Dollar and Crude Oil Correlation OPEC+ Deal

Chart created by @RichDvorakFX with TradingView

Even though crude oil plunged about 20% last week, the Canadian Dollar interestingly climbed against safe-haven currencies like the US Dollar and Yen. Correspondingly, the correlation between crude oil and USD/CAD price action turned positive, which contrasts the inverse relationship generally held by the direction of the Canadian Dollar and crude oil.

Forex for Beginners
Forex for Beginners
Recommended by Rich Dvorak
Check out these forex market basics and trading tips
Get My Guide

That said, the Canadian Dollar might face selling pressure once the CAD to oil correlation is restored to normalcy. Also, in light of prevailing crude oil demand woes, the announced OPEC+ supply cuts could fall short of bolstering crude oil prices. This poses considerable downside risk to the Canadian Dollar and might rekindle the rally in spot USD/CAD.

USD/CAD PRICE CHART: 4-HOUR TIME FRAME (09 MARCH TO 10 APRIL 2020)

USDCAD Price Chart Canadian Dollar Forecast

Meanwhile, the Canadian Dollar is pressing technical resistance as USD/CAD probes a major zone of confluence slightly below the 1.4000 handle. Highlighted approximately by the 61.8% Fibonacci retracement of its trading range since the early March gap higher, this technical level could serve as a springboard that sends spot USD/CAD price action recoiling back higher.

Traits of Successful Traders
Traits of Successful Traders
Recommended by Rich Dvorak
Discover the key traits of successful traders
Get My Guide

Reclaiming the 1.4000 mark could tee-up a test of trendline resistance extended through the series of lower highs recently recorded as USD/CAD consolidates. If the March 27 intraday low is breached, however, USD/CAD might gravitate toward the next support level around the 1.3800 price.

CANADIAN DOLLAR REBOUNDED AFTER BANK OF CANADA ENTERED US DOLLAR LIQUIDITY SWAP LINE

Canadian Dollar Forecast CAD to USD Price Chart Currency Basis Swap Bank of Canada

Perhaps improved US Dollar liquidity and reduced funding market stress – partly owed to a currency swap agreement between the Federal Reserve, Bank of Canada and other major central banks – has helped propel USD/CAD price action lower. Although, this theme might take the backseat as bearish fundamental forces weighing negatively on the Loonie, like the latest nosedive in Canadian employment data and in crude oil prices, take focus again.

Trading Forex News: The Strategy
Trading Forex News: The Strategy
Recommended by Rich Dvorak
Learn how to analyze and react to market news in real-time
Get My Guide

On another note, the Bank of Canada is scheduled to provide traders with another monetary policy update on Wednesday, April 15 at 14:00 GMT. The Bank of Canada might strike a gloomy tone toward the economy by underscoring the headwinds it faces due to the collapse in crude oil prices and the global recession that is likely unavoidable. In turn, spot USD/CAD might resume its surge while the Canadian Dollar comes back under pressure.

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES