Canadian Dollar Outlook: USD/CAD Breaks Down as Oil Soars, Trendline Support at Risk

The Canadian dollar rallied on Monday, boosted by widespread weakness in the U.S. dollar in the FX space, but more importantly by higher oil prices on the session – a top export for the Canadian economy. WTI and Brent soared more than 5% after OPEC+ announced a production cut to stabilise energy markets following wild swings in recent weeks.

OPEC+’s decision to slash output from May onwards will curtail worldwide supplies in the coming months, bolstering oil prices and creating a floor for the commodity in the event of a pronounced deterioration in the global economic outlook. This scenario will likely support the Loonie, provided sentiment recovers further, and volatility remains subdued.

Against this backdrop, USD/CAD fell more than 0.6% at the start of the week, breaking below the psychological 1.3500 level and falling towards trendline support at 1.3420, sitting slightly above the 200-day simple moving average, the line in the sand for bears and bulls. Price reaction in this area could offer important technical clues about the outlook, with a breakdown exposing 1.3370, followed by 1.3220.

While the bearish scenario seems more probable, a bullish turnaround should not be entirely ruled out. If USD/CAD fails to breach the 1.3420-1.3400 floor and rebound off that region, buying interest could accelerate, setting the stage for a move towards the 1.3500 handles. On further strength, the focus shifts to the 50-day simple moving average.