USD/CAD steady around 1.3540 as rally on Wall Street loses steam

• Loonie fails to benefit from higher crude oil prices.
• USD/CAD off weekly lows, starts another week in the 1.35-1.37 range.

The USD/CAD dropped earlier on Monday to 1.3518, the lowest level in two weeks, and then rebounded, finding resistance below 1.3560. Over the last hours, it has been trading between 1.3550 and 1.3530, marginally lower for the day.

The loonie benefited versus the greenback from an improvement in market sentiment that boosted commodity and emerging market currencies. Wall Street indexes are posing gains, but the rally lost strength. The Dow Jones gains 1.50% and the Nasdaq 2.45%.

Also, US economic data from the service sector offered some support to the greenback that trimmed losses. The DXY fell to 96.57, the lowest since June 24, before rising back to 96.80. It is still down for the day but off lows.

Crude oil prices are higher on Monday. The WTI gains 0.90% as it stands above $41.00 at two-week highs. The loonie is falling versus AUD and NZD despite higher crude oil. Risk appetite continues to be a critical factor for the mentioned currencies.

The Bank of Canada released its business outlook survey. The sentiment index tumbled to -7 from -0.7, the lowest since 2009. According to the document, businesses expect weakness in domestic and foreign demand to continue.  

USD/CAD with a bearish bias in the short-term but…

The USD/CAD continues to trade at the lowest level in two weeks, but the area around 1.3500 continues to be a relevant support. A break lower is needed in order to clear the way to more losses. Still, the technical picture shows the pair in a consolidation range between 1.3500 and 1.3700.

“After falling to a multi-month low of 1.33 in June, USDCAD is back above its 200-day moving average. The recent downgrade by Fitch for Government of Canada debt from AAA to AA+ coupled with dampening demand for oil because of tightening lockdown restrictions in some large US states because of COVID-19 cases are likely to foster a further depreciation of the Canadian dollar. Our short-term target for USDCAD is 1.38”, explained analysts at the National Bank of Canada.