USD/CAD fell 0.15% on Tuesday to about 1.4240, easing from recent highs near 1.4300, while the Canadian Dollar stayed under pressure as oil prices weakened on expectations of improving supply. JPMorgan put Middle East crude shipments at 17.5 million barrels per day, around 98% of pre-war levels, and said refined-product flows have recovered to 3 million barrels per day. Supply prospects were further shaped by the G7’s agreement to release 100 million barrels of diesel and crude, alongside Kuwait indicating output near 75% of pre-conflict levels and Saudi Arabia cutting official selling prices for Asian buyers.
On the US side, ADP’s NER Pulse showed private employers added an average 23.750K jobs per week in the four weeks to 19 September, up from 22.50K previously, as markets weighed Federal Reserve policy expectations after softer recent employment signals. Attention in Canada turns to September labour data, with forecasts for +5.0k jobs after -41.7k in August, an unemployment rate rising 0.1ppt to 6.5% and participation unchanged at 65.0%. Separately, BoC rate hike pricing of 100bps over 12 months has been flagged as vulnerable to repricing. Technical levels cited include spot near 1.4247, the 100-period SMA at 1.4244, the 200-period SMA at 1.4203, RSI (14) around 42, resistance at 1.4260 then 1.4293, and supports at 1.4232, 1.4200–1.4175, 1.4150 and 1.4133.
Fundamental Drivers and Macro Outlook
We see a strong case for long-biased derivative strategies on USD/CAD in the coming weeks. While the pair has eased slightly to 1.4240 from its recent peak near 1.4300, the Canadian Dollar remains highly vulnerable to further downside. This weakness is driven by a steady decline in crude oil prices, which traditionally dictates the direction of the loonie.
We expect oil prices to remain under pressure as global supply rapidly recovers, with Middle East crude shipments returning to nearly 98% of pre-war levels. The G7’s decision to release 100 million barrels of crude and diesel from emergency reserves will likely keep global benchmarks like Brent crude struggling to sustain gains. Derivative traders should look to short energy-focused contracts or buy USD/CAD call options to capitalize on this growing supply glut.
The upcoming Canadian labor force survey is a critical risk event, with expectations pointing to a weak addition of only 5,000 jobs after a massive loss of 41,700 jobs in August. We believe the market’s current expectation of 100 basis points in domestic interest rate hikes over the next year is far too aggressive given the fragile backdrop. As core inflation hovers near the 2% target, any dovish shift in policy expectations will likely trigger a sharp selloff in the Canadian currency.
On the other side of the pair, US private hiring has shown modest acceleration with average weekly job gains rising to 23,750, providing a solid cushion for the greenback. Even with the Federal Reserve navigating a cautious path, US Treasury yields remain resilient compared to their Canadian counterparts. This widening yield spread supports our bullish outlook for the US Dollar against the Loonie.
Technical Outlook and Trading Strategies
From a technical perspective, we recommend buying USD/CAD on dips toward the support zone between 1.4200 and 1.4232, where key moving averages should limit losses. A clean break above the immediate overhead resistance at 1.4260 could quickly open the doors for a rally toward 1.4293. Utilizing structured options or tight risk-management tools on spot contracts will help manage volatility ahead of this week’s pivotal employment data.
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