Canadian Dollar seems vulnerable near August 7 low amid sliding oil prices, trade tensions

The USD/CAD pair attracts some dip-buyers at the start of a new week, stalling Friday's modest pullback from levels beyond the 1.4000 psychological mark, or the highest since August 7. Moreover, the supportive fundamental backdrop backs the case for an extension of a nearly two-week-old uptrend.

Crude oil prices slide to an over one-week low as a recovery in shipments from Saudi Arabia eases supply concerns. Adding to this, the widening US-Canada interest rate gap and US-Canada trade tensions contribute to the Canadian Dollar's (CAD) relative underperformance against its American counterpart. In fact, the Bank of Canada (BoC) maintained its key policy interest rate at 2.25% earlier this month, while the US Federal Reserve (Fed) hiked rates for the first time in over three years last Wednesday.

On the trade-related front, the US imposed steep 50% tariffs on approximately $20 billion worth of Canadian goods on August 22. Canada, on the other hand, implemented retaliatory tariffs ranging from 15% to 50% on roughly $20 billion worth of US goods on September 8. Apart from this, the underlying US Dollar (USD) bullish tone, bolstered by the Fed's hawkish stance and escalating Middle East tensions, lends some support to the USD/CAD pair and validates the near-term constructive outlook.

In fact, the so-called dot plot revealed that Fed officials expect at least one more follow-up rate hike this year. Meanwhile, Iran laid out seven conditions for restarting talks with the US. Moreover, Iran-backed Houthis in Yemen said that they attacked sensitive sites in the Saudi capital of Riyadh on Saturday with missiles and drones. This keeps the geopolitical risk premium in play and favors USD bulls, suggesting that the path of least resistance for the USD/CAD pair remains to the downside.

USD/CAD daily chart

Technical Analysis

The USD/CAD pair keeps a bullish near-term bias above the 100-day Exponential Moving Average (EMA) at 1.3924 and the 38.2% Fibonacci retracement at 1.3932. Spot prices have also reclaimed the 50% retracement at 1.3992, suggesting buyers retain control. The next relevant resistance is aligned at the 61.8% Fibo. retracement near 1.4052, ahead of a stronger barrier at the 78.6% level around 1.4137 and the 1.4246 swing high.

On the downside, the 50% retracement at 1.3992 offers immediate support, followed by the 38.2% level at 1.3932 and the 100-day EMA at 1.3924. A deeper break would expose the 23.6% retracement at 1.3858 before the structural floor around 1.3738.