USD/CAD eyes key resistance at 1.3700, pares losses on OPEC driven oil price surge

  • Loonie pares losses alongside oil price surge
  • Oil rises on OPEC+ action, but may remain a choppy trade on global growth concerns and rising Non-OPEC production
  • $100 oil risk will remain on table throughout the winter

USD/CAD Daily Chart

After having its worst slide in a month, the Canadian dollar continues to weaken as investors digest the surprise Canadian contraction in the second quarter.   BOC rate hike bets are fading away but an outperformance with European currencies could limit the downside in the loonie.  Against the dollar, the Canadian currency might have an uphill battle.  Price action on the USD/CAD daily chart has extended above the 1.3600 level and is approaching key resistance at the 1.3700 handle, which was respected in both April and May.

The Canadian dollar benefited from the surge in oil prices, but that might not be sustained as traders might focus on the economic outperformance with the US to the Canadian economy.  The US might see 5% or higher growth in Q3 and possibly above 2% growth in Q4, while Canada might be in the middle of a technical recession.

The rally from 1.32 to 1.36 has been mostly a one-way move, so if sentiment changes for the US economy, a steep correction could quickly emerge.  The 1.3465 region would provide major support, followed by the psychological 1.3400 level.


While global growth concerns intensify, OPEC+ appears to be committed to keeping the oil market tight no matter the cost to the global economy.  Brent crude surged above the $90 level after OPEC+ producers extended supply curbs until year-end. It looks like the Saudis and Russians are on the same page about keeping the oil market tight, with the Saudis extending their voluntary 1 million bpd cut to the end of the year, while the Russians will extend their 300,000 bpd oil export cut.

While the mood of markets was downbeat given the soft China and European PMIs, oil was only down modestly.  Expectations remain elevated that the US economy will have a solid third quarter and decent fourth quarter, which means recession risks will have to wait possibly till next year. China, the world’s second largest economy is adjusting to the end of easy money alongside subdued growth. The political landscape has made China less investable and that is hampering the growth outlook.

With a mixed demand outlook heading towards the winter, the risks are still to the upside for oil prices.  The International Air Transport Association is seeing shorter delivery times, which could be a good sign that economic activity is increasing.

WTI Crude Daily Chart

The supply side currently supports prices to remain capped around the $90 a barrel level as non-OPEC output rises, offsetting a good portion of OPEC’s extended cuts.  But if any supply outages emerge or if expectations grow for a cold winter, we could see $100 oil rather easily.

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya