The recent dynamics in the forex market continue to revolve around expectations for Federal Reserve policy. As market bets on further rate cuts intensify, the U.S. dollar index has weakened broadly, dragging down the greenback against major currencies.
Recent remarks from Fed officials reinforced this outlook, signaling policymakers' preference for gradual financial easing to mitigate economic downside risks. This has eroded the dollar's yield advantage and capped its rebound potential.
Markets await the release of U.S. Q3 annualized GDP growth data. While projections still point to relatively stable expansion, the slowdown itself is being interpreted as justification for continued monetary policy accommodation.
In the absence of significant upside surprises, standalone data may offer limited support for the dollar, leaving it vulnerable to policy expectations and risk sentiment in the near term.
In contrast, the Canadian dollar has shown relative resilience. As a commodity-linked currency, the loonie benefits from rebounding crude oil prices. Geopolitical tensions continue to support oil's elevated trading range, providing tailwinds for Canada, a major crude exporter.
Simultaneously, reports of energy infrastructure disruptions in certain regions have heightened supply chain concerns, driving capital toward energy-sensitive currencies and amplifying the CAD's relative strength.
With both precious metals and energy prices firming, risk appetite remains cautious. Safe-haven flows favor gold over the dollar, temporarily weakening the greenback's traditional haven appeal—a key factor pressuring USD/CAD.
Technically, USD/CAD maintains its downward trajectory, having breached short-term moving average supports. The pair now trades below both the 5- and 10-day SMAs, with these indicators turning downward to exert downward pressure.
The RSI's retreat toward 50 reflects balanced but bearish-leaning momentum. Key support lies at 1.3700, corresponding to the previous consolidation range's lower bound. A decisive break could accelerate declines.
Initial resistance sits at 1.3820-1.3850. Until this zone is reclaimed, the broader trend remains bearish.
Fundamentally, USD/CAD's decline stems more from dollar weakness and external commodity factors than material CAD strength. With Fed easing expectations intact and oil prices resilient, near-term downside risks persist.
However, unexpectedly strong U.S. data or temporary geopolitical de-escalation could trigger technical rebounds, though sustained reversal would require stronger fundamental catalysts.
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