What is happening?
Just look at the charts above – the Canadian dollar has skyrocketed! Such strong growth has been caused by several reasons.
First, oil prices have gained from the global energy crunch. Crude oil has hit the highest level since 2014 as the demand is growing ahead of winter, while OPEC+ doesn’t rush to increase output significantly. Canada is one of the world’s largest oil producers and its currency has historically positively correlated with oil prices.
Second, Canadian employment figures came out better than analysts forecasted on Friday. It can signal another taper from the Bank of Canada later this month, which may push the CAD up. Just to remind you, the BOC was the first bank that tightened the policy after the Covid-19 crisis. Thus, it’s quite reasonable for the bank to continue tapering after a strong job report. Meanwhile, the US has revealed the worse-than-expected NFP numbers. Canadian Dollar strength and US Dollar weakness pressed USD/CAD to its lowest level since July.
USD/CAD has broken through all the moving averages and the support line while moving down. It has stopped ahead of the support level of 1.2445 – the July lows which the pair has failed to cross and reversed up. Let’s wait for a breakout. If it occurs, the pair is likely to drop to the psychological level of 1.2400. However, before the breakout happens, we might see a pullback to the 200-day moving average of 1.2500.