16 September highs: Canadian Dollar hovers nearby against USD as traders await Friday’s jobs data

A second consecutive day of selling weighs on USD/CAD as the US Dollar absorbs the election fallout.
Expectations of a Fed rate rise cushion the USD, while weak oil prices weigh on the Loonie and lend the pair support.
Friday’s monthly employment reports from the US and Canada also keep traders on the sidelines.

USD/CAD trades around the mid-1.3900s. Selling pressure persists for a second consecutive day in Thursday’s early European session, leaving the pair near the previous day’s low, its weakest level since 16 September.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Concerns over fiscal gridlock following a Democratic sweep in the US midterm elections push the US Dollar (USD) to its lowest level since late September. Such a deadlock could constrain government spending and slow economic growth. The result has also reduced expectations that US President Donald Trump will resume military strikes against Iran, encouraging hopes that the Middle East conflict could end. This adds to pressure on the safe-haven dollar and, in turn, weighs on USD/CAD.

Crude oil has fallen to a two-month low on the latest optimism, easing inflation concerns and pushing US bond yields further down. Even so, investors continue to price in an over 80% probability of another increase in borrowing costs by the US Federal Reserve (Fed) in December. A geopolitical risk premium also persists as the US-Iran standoff over the Strait of Hormuz continues. These factors curb further USD losses. At the same time, oil’s weakness weighs on the commodity-linked Loonie and could underpin USD/CAD.

With monthly employment figures from both the US and Canada due on Friday, traders may defer fresh directional positions. The closely watched US Nonfarm Payrolls (NFP) report and speeches by influential FOMC members will provide further clues on the Fed’s policy outlook and shape USD demand. Geopolitical developments could also trigger volatility and shift oil prices, offering a meaningful catalyst for USD/CAD trading.

4-hour chart: USD/CAD

1.3970 Resistance: USD/CAD Technical Outlook

Below the 200-period Simple Moving Average (SMA) at 1.4119, USD/CAD retains a bearish bias on the four-hour chart. It also trades beneath 1.3970, the 61.8% Fibonacci retracement of the latest advance. The next significant support lies at the 78.6% retracement at 1.3880. Further down, the area around 1.3765 provides another floor, where buyers would be expected to take greater interest should the correction continue.

Any recovery would first encounter resistance at 1.3970, the 61.8% Fibonacci retracement. The 50% level at 1.4033 and the 38.2% retracement at 1.4097 follow. Beyond those barriers, the 200-period SMA at 1.4119 and the 23.6% retracement at 1.4175 stand ahead of the recent cycle high around 1.4302.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Canadian Dollar: Key Questions

Canadian Dollar: The Main Drivers

Interest rates set by the Bank of Canada (BoC), oil prices, economic health, inflation and the trade balance are the principal drivers of the Canadian Dollar (CAD). Oil is Canada’s largest export, while the trade balance measures the difference between the value of the country’s exports and imports. Investor sentiment also matters: demand for riskier assets, or risk-on conditions, supports the CAD, whereas risk-off conditions favour safe havens. The strength of the US economy is another important influence, as the US is Canada’s largest trading partner.

Bank of Canada Policy: The Impact on CAD

By setting the rate at which banks lend to one another, the Bank of Canada (BoC) shapes borrowing costs throughout the economy and has a substantial influence on the Canadian Dollar. Its primary objective is to keep inflation within 1-3%, raising or lowering interest rates as needed. Comparatively high rates generally support the CAD. The Bank of Canada can also adjust credit conditions through quantitative easing or tightening. Easing is negative for the CAD, while tightening is positive.

Oil Prices: A Key CAD Influence

As petroleum is Canada’s largest export, changes in oil prices tend to have an immediate effect on the Canadian Dollar. Rising oil prices generally lift the CAD by increasing overall demand for the currency; falling prices usually have the opposite effect. More expensive oil also tends to make a trade surplus more likely, providing additional support for the CAD.

Inflation Data: Implications for the Canadian Dollar

Traditionally, inflation was regarded as harmful to a currency because it erodes the value of money. In modern times, however, the easing of cross-border capital controls has reversed that relationship. Higher inflation generally prompts central banks to raise interest rates, attracting global investors seeking better returns on their funds. The resulting capital inflows increase demand for the domestic currency, which in Canada is the Canadian Dollar.

Economic Releases: Signals for CAD

By indicating the economy’s health, macroeconomic releases can move the Canadian Dollar. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys all help shape the CAD’s direction. Economic strength supports the currency by attracting foreign investment and potentially encouraging the Bank of Canada to raise interest rates. Weak economic figures, by contrast, are likely to weigh on the CAD.