USD/CAD Outlook: Bullish WTI Supporting Loonie

• Oil prices increased due to persistent concerns over Middle Eastern supply disruptions.

• There is uncertainty over the start of Fed rate cuts.

• Economists anticipate a job gain of 13,500 in Canada.

There has been a bearish shift in the USD/CAD outlook, mainly spurred by incidents at a Libyan field and escalating tensions in the Israel-Gaza conflict. The Canadian dollar is stronger, riding the wave of rising oil prices fueled by worries about supply disruptions in the Middle East.

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Local protests on Wednesday led to a complete shutdown of production at Libya’s Sharara oilfield, which produces up to 300,000 barrels per day. 

Meanwhile, on Wednesday, the currency strengthened to a nearly two-week high. This rally came as investor confidence in an imminent shift by the Fed to rate cuts decreased. Notably, recent strong performances in risk-sensitive assets like stocks have boosted the Canadian dollar. 

Elsewhere, minutes from the Fed’s December 12-13 policy meeting provided little insight into the timing of potential rate cuts. Still, they indicated a growing belief that inflation is in check. Moreover, there are concerns about the risks associated with an “overly restrictive” monetary policy on the economy.

This document marks the end of a year when the Fed was uncertain about the necessary measures to control inflation. However, by the end of the year, inflation was decreasing more rapidly than anticipated. 

The next big events for the pair include employment reports from the US and Canada on Friday. Economists anticipate a job gain of 13,500 in Canada and 168,000 in the US.

USD/CAD key events today

• The US ADP non-farm employment change
• US initial jobless claims

USD/CAD technical outlook: 1.3350 resistance triggers a pullback

The pair has paused its recent rally after reaching the 1.3350 resistance level. At the same time, bulls could not push beyond the 0.382 fib retracement level. As such, the price is retreating and heading for the 30-SMA support. However, the bullish bias is still strong as the price is above the SMA, and the RSI is in bullish territory above 50. 

Therefore, the decline will likely pause at the 30-SMA, where bulls are waiting to resume the new uptrend. If this happens, the price will climb to the 1.3451 resistance level. However, if bears break below the 30-SMA, the price will dip to the 1.3200 support.

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• Source: https://www.forexcrunch.com/blog/2024/01/04/usd-cad-outlook-bullish-wti-supporting-loonie/