• The Canadian dollar benefited from higher oil prices.

• USD/CAD recorded a weekly rise due to the Bank of Canada’s recent shift in guidance

• The Fed will announce its interest rate decision on Wednesday.

Monday saw a bearish turn in the USD/CAD outlook, driven by the surge in oil prices triggered by a drone strike on US forces in Jordan. This event escalated worries about potential supply disruptions in the Middle East. Notably, the Canadian dollar benefits from higher oil prices because Canada is a net oil exporter.

The pair saw a slight decline on Friday. However, it recorded a weekly gain. Investors digested the Bank of Canada’s recent shift in guidance, anticipating increased volatility for the Canadian dollar. Notably, Bank of Canada officials said they were considering when to cut borrowing costs rather than thinking of further rate hikes.

In domestic data, a preliminary estimate revealed a 0.8% increase in Canada’s wholesale trade in December compared to November.

Meanwhile, the Federal Reserve will announce its interest rate decision on Wednesday. December saw a marginal rise in US prices. However, the annual inflation increase stayed below 3% for the third consecutive month. This reinforced expectations that the Federal Reserve would initiate interest rate cuts this year. Still, the timing of the anticipated rate cut remains uncertain.

Additionally, the Friday report indicated a surge in consumer spending at the end of 2023 as Americans indulged in goods and services during the holidays.

USD/CAD key events today

Investors do not expect key events from Canada or the US on Monday. As a result, investors will likely focus on developments in the Middle East.

USD/CAD technical outlook: Bears strive to breach the 1.3425 support barrier

On the charts, bears are attempting to breach the 1.3425 support level. This bearish move comes after the price made a double-top pattern and a bearish divergence. Meanwhile, the double top came when the bullish trend paused at the 1.3525 key resistance level. At the same time, the RSI confirmed that bulls were exhausted when it made a lower high. Consequently, bears took over by breaching the 30-SMA support line.

However, the price must now break below the 1.3425 support level to make a lower low and confirm a bearish reversal. Otherwise, it will keep consolidating between the 1.3525 resistance and the 1.3425 support.

https://www.forexcrunch.com/blog/2024/01/29/usd-cad-outlook-middle-east-tensions-lift-oil-price-loonie/