USD/CAD Outlook: Oil Price Drop Weighs on Canadian Dollar

• Oil prices lost nearly 1% on Monday amid talks of a ceasefire in the Middle East war.

• Canadian wholesale trade declined by 1.3% in March.

• US data showed a moderate inflation increase in March.

The USD/CAD outlook shows a slight bullish trend, with the Canadian dollar weakening in response to declining oil prices. At the same time, recent data from Canada and the US has solidified expectations that the Bank of Canada will cut in June while the Fed remains hawkish.

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Oil prices lost nearly 1% on Monday amid talks of a ceasefire in the Middle East war. As a result, investors were less concerned about an escalation in the war and a tighter oil market. A drop in oil prices usually leads to a decline in the loonie, as Canada majorly exports the commodity.

Meanwhile, data on Friday revealed that Canadian wholesale trade declined by 1.3% in March from the previous month. This was yet another indication of a slowdown in Canada’s economy. It puts more pressure on the Bank of Canada to cut rates by June. 

On the other hand, US data showed a moderate inflation increase in March. However, the costs of housing and utilities remained high, signaling persistent price pressures. Since the year began, US inflation data has kept surprising markets, leading to a decline in Fed rate cut expectations. Moreover, the outlook keeps changing with incoming data, making the Fed more hawkish than the Bank of Canada. As a result, the Canadian dollar has lost value against the US dollar since the year began.

USD/CAD key events today

The pair might consolidate, as no key economic releases are coming from Canada or the US today.

USD/CAD technical outlook: Bears weaken near the 0.618 Fib

On the technical side, the USD/CAD price is on a downtrend since it trades below the 30-SMA with the RSI in bearish territory. However, although the price respects the SMA as resistance, it has started trading near the line. Therefore, bears are finding it harder to make big swings below the SMA. This is a sign that they are weaker. This weakness is approaching the 0.618 Fib level, which might act as support.

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At the same time, the RSI has made a bullish divergence, indicating weaker bearish momentum. If this divergence plays out, the price could break above the SMA to target the 1.3840 resistance level.

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