USD/CAD drops below 1.31 on crude oil rally, BoC’s Business Outlook Survey

• Crude oil prices rose sharply on reports of OPEC considering deeper output cuts.
• Bank of Canada said business sentiment improved slightly in the third quarter.
• US Dollar Index clings to modest daily gains around mid-97s.

The USD/CAD pair advanced to a fresh daily high of 1.3123 in the early trading hours of the American session after the disappointing retail sales data from Canada weighed on the Loonie. However, with the upbeat tone in the Bank of Canada’s (BoC) Business Outlook Survey and rising crude oil prices providing a boost to the CAD, the pair reversed its course and erased its daily gains. As of writing, the pair was flat on the day at 1.3086.

The data published by Statistics Canada on Tuesday revealed that retail sales in August contracted by 0.1% to miss the market expectation for an increase of 0.4%. However, in its Business Outlook Survey for the third quarter, the BoC said business sentiment improved slightly. Moreover, “Inflation expectations are unchanged; the majority of firms still anticipate inflation will be in the lower half of bank’s target range,” the BoC added to help the CAD start recovering its losses.  

Crude oil prices jump on OPEC headlines

Additionally, citing OPEC sources familiar with talks, Reuters reported that OPEC and its allies were considering the possibility of deeper oil cuts in December meeting and caused crude oil prices to rise sharply, which allowed the commodity-related Loonie to gather further strength. At the moment, the barrel of West Texas Intermediate is up 2.25% on the day at $54.65.

On the other hand, the US Dollar Index is posting modest recovery gains around mid-97s on Tuesday, keeping the pair’s losses limited for the time being.

Technical levels to watch for