USD/CAD has surged to hit its latest upside target of 1.4600 as news over the weekend regarding sanctions on Iran being lifted further weighed on the Canadian dollar.
With Iran potentially on track to flood an already-glutted global oil supply, crude oil prices have come under increasing pressure after having already fallen precipitously since the very beginning of the new year.
As the Canadian economy is closely dependent upon oil and energy-related exports, the price of crude oil often has a positive causal relationship with the value of the Canadian dollar. With oil prices having recently been battered relentlessly by compounding oversupply worries and concerns over a demand slowdown from a languishing Chinese economy, the Canadian dollar has just fallen to its lowest level against the US dollar in more than 12 years, as the West Texas Intermediate benchmark for US crude oil has also fallen to its lowest level in as many years.
As a direct result of this prolonged and increasing pressure on crude oil prices, there is growing speculation that the Bank of Canada may potentially announce a further cut to Canada’s key interest rate during Wednesday’s highly anticipated monetary policy report. If this is to be the case, the Canadian dollar could fall even further, pushing USD/CAD up to progressively higher multi-year highs.
Further contributing to the sharp rise for the currency pair has been the persistent strength of the US dollar, which has continued to stay well-supported in view of the fact that the US Federal Reserve’s current monetary tightening cycle diverges markedly from other major central banks, most of which remain entrenched in easing cycles.
Having just reached up to hit its 1.4600 target level before pulling back moderately, USD/CAD is at a critical technical juncture. While the fundamentals support a further extension of the sharp and longstanding bullish trend, the currency pair has become exceedingly overbought and overextended after such sharp recent surges, and is likely due for a pullback on a shorter-term basis. Tentative support for this pullback currently resides around the 1.4300 level. To the upside, on any confirmed continuation of the entrenched uptrend above the noted 1.4600 resistance level, the next major resistance target is at the key 1.4900 level.