USD/CAD Outlook: Oil’s Plunge Leaves Canadian Dollar Feeble

• Oil was on course for its fourth consecutive week of declines.

• US unemployment benefit claims rose to 231,000, exceeding the expected 220,000.

• US industrial production declined by 0.6% in October.

The USD/CAD outlook shines as the Canadian dollar softens amid lower oil prices, with the pair rising despite dollar weakness. On Friday, oil prices showed little change but were on course for their fourth consecutive week of declines. However, they dropped around 5% to a four-month low on Thursday due to concerns about global demand. This decline weighed heavily on the Canadian dollar. 

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Notably, this week’s decline in oil is primarily due to a significant increase in US crude inventories and record-level production. Consequently, there are worries about weak demand in the world’s largest oil consumer.

Moreover, JPMorgan’s commodities research reported that its global oil demand tracker indicated an average demand of 101.6 million barrels daily in the first half of November. However, this figure is 200,000 bpd lower than the month’s projected demand. 

At the same time, analysts suggest the recent price drop may lead Saudi Arabia to extend its oil output cuts into 2024.

Meanwhile, the US dollar was weak after a set of downbeat data. Unemployment benefit claims rose to 231,000, exceeding the expected 220,000 reading. Concurrently, industrial production declined by 0.6% month-on-month in October, with manufacturing output down 0.7%. 

ANZ noted, “Manufacturing output pointed to ongoing struggles in the sector. The lagged effects of monetary tightening are now feeding through. Furthermore, we expect moderation across output, labor, and inflation in the coming months and quarters.”

Elsewhere, Federal Reserve Governor Lisa Cook remarked Thursday that US economic risks were two-sided. Still, there is the possibility of a ‘soft landing.’

USD/CAD key events today

• The US building permits report

USD/CAD technical outlook: Bulls take the lead above the 30-SMA.

On the charts, the USD/CAD price is on the verge of crossing above the 30-SMA. This comes after bulls broke above the 1.3750 resistance level. At the same time, the RSI has crossed above 50, indicating a shift in sentiment to bullish.

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The bulls might soon take charge. However, the price still trades in a larger scale range. There is almost equal strength for bulls and bears between the 1.3650 support and the 1.3851 resistance. Therefore, bulls must break above the 1.3851 resistance for the price to start trending.

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