Canadian Dollar holds near September 16 highs against USD with Friday’s jobs data in focus

Selling pressure persists in USD/CAD for a second consecutive day as the US Dollar faces the post-election fallout.
The pair finds support as weaker oil prices weigh on the Loonie, while expectations of a Fed rate hike cushion the USD's decline.
With monthly employment reports from the US and Canada due on Friday, traders also prefer to stay on the sidelines.

Selling pressure keeps USD/CAD near the previous day's low, its weakest level since September 16, in Thursday's early European session. The pair is trading around the mid-1.3900s as it faces sellers for a second consecutive day.

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

Concerns over fiscal gridlock following a Democratic sweep in the US midterm elections have pushed the US Dollar (USD) to its lowest level since late September. Such an impasse could constrain government spending and slow economic growth. The election outcome has also reduced expectations that US President Donald Trump will resume military strikes against Iran, raising hopes that the Middle East conflict could end. The safe-haven dollar faces additional pressure from these hopes, in turn weighing on USD/CAD.

Crude oil has also fallen to a two-month low on the latest optimism. The decline is easing inflation concerns and prompting a further drop in US bond yields. Even so, markets continue to price in a probability of over 80% that the US Federal Reserve (Fed) will increase borrowing costs again in December. The US-Iran standoff over the Strait of Hormuz also keeps a geopolitical risk premium in place. Together, these factors curb further USD losses, while lower oil prices weigh on the commodity-linked Loonie and could lend support to USD/CAD.

Before taking fresh directional positions, traders may prefer to await Friday's monthly employment releases from the US and Canada. Further guidance on the Fed's policy outlook will be sought from the closely watched US Nonfarm Payrolls (NFP) report and speeches by influential FOMC members, shaping demand for the USD. Geopolitical developments could also trigger volatility and affect oil prices, giving USD/CAD a meaningful trading catalyst.

What does the USD/CAD 4-hour chart indicate?

Technical Outlook

A bearish bias persists on the four-hour USD/CAD chart, with the pair trading beneath both the 200-period Simple Moving Average (SMA) at 1.4119 and the latest upswing's 61.8% Fibonacci retracement at 1.3970. Support next comes into focus at the 78.6% retracement of 1.3880, ahead of a lower floor around 1.3765. Should the correction deepen, buyers would be expected to show greater interest around that lower level.

Any recovery would first encounter resistance at 1.3970, the 61.8% Fibonacci retracement, before the 50% level at 1.4033 and the 38.2% retracement at 1.4097. Further up, the route to the recent cycle high near 1.4302 is capped by the 200-period SMA at 1.4119 and the 23.6% retracement at 1.4175.

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

Canadian Dollar: Frequently Asked Questions

Which factors matter most for the Canadian Dollar?

Movements in the Canadian Dollar (CAD) depend chiefly on interest rates set by the Bank of Canada (BoC), Oil prices, the state of Canada's economy, inflation and the trade balance. 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 matters too: demand for riskier assets (risk-on) generally supports the CAD, whereas a preference for safe havens reflects risk-off sentiment. Economic conditions in the US are another major influence on the Canadian Dollar, given its position as Canada's largest trading partner.

Why do Bank of Canada decisions affect the Canadian Dollar?

By determining the interest rate at which banks lend to each other, the Bank of Canada (BoC) influences borrowing rates across the economy and has a substantial impact on the Canadian Dollar. Keeping inflation within 1-3% is the BoC's primary objective, pursued through increases or reductions in interest rates. Relatively higher rates generally support the CAD. Credit conditions can also be shaped through quantitative easing or tightening: easing tends to weigh on the CAD, while tightening tends to support it.

Why are Oil prices important for the Canadian Dollar?

With petroleum accounting for Canada's largest export, changes in Oil prices tend to feed directly into the Canadian Dollar's value. A rise in Oil prices generally lifts the CAD as overall demand for the currency grows; falling prices typically have the reverse effect. Costlier Oil also increases the likelihood of a trade surplus, providing another source of support for the CAD.

Why can inflation figures move the Canadian Dollar?

Inflation was traditionally regarded as a drag on a currency because it erodes the value of money. In modern times, however, the easing of cross-border capital controls has seen the reverse relationship emerge. When inflation rises, central banks tend to increase interest rates, drawing in more capital from global investors looking for attractive returns on their funds. The resulting demand supports the domestic currency, which in Canada's case is the Canadian Dollar.

What role do economic releases play in Canadian Dollar movements?

The Canadian Dollar can respond to macroeconomic releases because they offer a measure of the economy's health. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys can all shape the CAD's direction. Economic strength supports the currency by attracting foreign investment and potentially prompting the Bank of Canada to raise interest rates. Weak economic readings, by contrast, are likely to weigh on the CAD.