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.