USD/CAD Outlook: Big Downside Potential as Oil Prices Surging

• Rising oil prices due to the easing of quarantine requirements in China are boosting the Canadian dollar.
• Price caps proposed by G7 leaders might renew supply concerns.
• Bears are eying 1.2700 as the next target in the charts.

Today’s USD/CAD outlook is bearish as rising oil prices boost the Canadian dollar. A third straight day of gains for oil strengthened the Canadian dollar against its US equivalent. Oil prices are pushing higher after China decided to ease quarantine requirements for international arrivals, raising hope for increased commodity demand.

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This easing will also increase economic activity in the world’s second-largest economy and possibly boost growth.

“This is a good step forward. It’s not enough to lead to a very robust recovery, but it’s going to be positive incrementally,” said Hani Redha, multi-asset portfolio manager at PineBridge Investments.

Supply concerns supported oil prices after G7 leaders agreed to implement price caps for Russian oil and gas imports.

“A seam of tight supply news bolstered the (oil) market,” said Commonwealth Bank of Australia analysts. “Political unrest might curtail supply from a couple of second-tier producers, Ecuador and Libya. And then there’s the G7’s proposed price cap on Russian oil.”

With all this happening, USD/CAD, which is sensitive to commodity prices, might push lower as Canada’s economy benefits from rising oil prices.

USD/CAD key events today

Investors do not expect significant news releases from Canada today, so all focus will be on the United States. There will be a consumer confidence report from the Conference Board in the US, which is expected to show lowered confidence in economic activity. This data is a significant indicator of consumer spending in the US.

USD/CAD technical outlook: 1.2700 under the limelight

Looking at the 4-hour chart, we see the price breaking below critical support at 1.28635. The price is trading below the 30-SMA, showing bears are in control. RSI is trading below the 50 level, also favoring bearish momentum. If bears can break below this support and start trading below it, we could see the price pushing toward 1.2700, which acted as support back on April 26.

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The price outlook here remains bearish until we can see a break back above the 30-SMA and RSI trading above 50.

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