The OPEC+ meeting struck, can the US dollar against the Canadian dollar fall further?

On Monday (October 4), there was some sell-off in the US dollar against the Canadian dollar for the third consecutive trading day. A combination of factors should help limit losses and give bears reason to be cautious. However, the US dollar/Canadian dollar needs to continue to fall below the 1.2600 mark to confirm a new breakthrough. The US dollar was still on the defensive against the Canadian dollar before the European market, with a slight decline. The OPEC+ ministerial meeting during the day and the September non-agricultural data of the United States on Friday attracted investors' attention.

Two major events hit this week, and the foreign exchange market is eagerly waiting

After a bumpy third quarter, 2021 will enter the final stage. The United States will release key employment data on Friday. OPEC+ will hold a meeting within the day to evaluate oil production. The foreign exchange market remains cautious until the key meeting and data are released.

In September, the Federal Reserve stated that it might "soon" reduce the scale of monthly bond purchases. Powell pointed out that a "decent" employment report is needed to initiate the reduction. The September non-agricultural employment data released on Friday will be the last official employment report before the Fed’s November meeting.

The survey predicts that after the sharp drop in the number of jobs in August, the United States will add 500,000 jobs. Stronger-than-expected data may exacerbate market concerns that the Fed may loosen its loose monetary policy faster than expected, and may trigger more market turmoil.

The OPEC+ ministerial meeting will be held today to review the oil production policy. They are facing a three-year high of oil prices exceeding US$80 per barrel, as well as pressure from consumers to increase supply. Until recently, sources also expected OPEC+ to stick to the existing plan reached in July, increase production by 400,000 barrels per day per month, and gradually cancel the plan to reduce production by 5.8 million barrels per day.

However, with the unexpected shutdown of production in the United States and the strong recovery in demand after the epidemic, oil prices have been pushed up. At the same time, the White House expressed concern about high oil prices and said that it is communicating with OPEC+ to find a way to solve the problem of oil costs. Some sources said that OPEC+ may release more oil to the market.

Optimistic economic data, weak risk sentiment still supports the dollar

The currency pair fell slightly for the third consecutive trading day on Monday, but a series of factors helped limit further losses. The fall in crude oil prices weakened the Canadian dollar related to commodities and provided some support for the US dollar against the Canadian dollar. The optimistic data boosted the US stock market. Personal spending, personal consumption expenditure (PCE) core deflator, University of Michigan consumer confidence index, and manufacturing PMI and ISM data were slightly better than expected.

The market's expectations of the Fed's early tightening of policies have stabilized, which has supported the US dollar, and the US dollar has further benefited from the weakening of the risk tone. Investors seem to be convinced that the Fed will begin to reduce bond purchases before the end of 2021 and raise interest rates in 2022.

In addition, market risk sentiment remains weak. Although the US stock market took a strong lead last Friday, most Asian stock markets have weakened today. Uncertainty on economic recovery, the impact of OPEC+ and high energy prices seem to have put pressure on investors, pushing some safe-haven funds to flow to safe-haven U.S. dollars.

The outlook of the energy crisis pushed the US dollar against the Canadian dollar to fall slightly, and the 1.26 mark attracted short-term attention

Although crude oil prices fell slightly, rising commodity prices continued to support the Canadian and Australian dollars. Natural gas prices remain at their highs in the past 7 years. At present, investors are remaining cautious, waiting for the OPEC+21 ministerial meeting in the coming days. The focus will be on the expected increase in output of 400,000 barrels per day.

From a technical point of view, so far, the currency pair has successfully held the 1.2600 mark and last week's volatility low. This key support level has attracted the attention of short-term investors. At the same time, broader market risk sentiment will affect the U.S. dollar and provide a new impetus for the U.S. dollar against the Canadian dollar. In addition, oil price dynamics may further bring some short-term trading opportunities for the US dollar against the Canadian dollar.


(Daily chart of USD/CAD)

GMT+8 At 15:42 on October 4, the U.S. dollar against the Canadian dollar reported 1.2641.