The U.S. dollar fell against the Canadian dollar and hit a new one-month low! Expected to fall to 1.2 in the future

On Friday (October 8), the US dollar to Canadian dollar was still on the defensive in the first half of the European session, and is currently hovering near the four-week low, mainly affected by rising oil prices.


The recent increase in crude oil prices has reached the highest level since November 2014, which continues to benefit the Canadian dollar, the commodity-related currency, and pose resistance to the US dollar against the Canadian dollar. On the other hand, the U.S. dollar is seen as consolidating within a range, leaving little impression on bullish traders and providing no impetus.

Nonetheless, the rise in U.S. Treasury yields-in the context of the Fed's possible early tightening of policy-has helped limit the sharp fall in the dollar. This was again seen as a key factor that prevented investors from making any aggressive bearish bets on the exchange rate and led to mild volatility in price movements on the last day of the week.

Investors seem to be convinced that the Fed will soon begin to reduce bond purchases and raise interest rates in 2022. In addition, concerns about the recent surge in crude oil prices will trigger inflation, pushing the benchmark 10-year U.S. Treasury bond yield to a four-month high, reaching a threshold of around 1.60% on Friday.

Market participants are now waiting for the U.S. and Canada to release high-profile monthly employment data. The well-known non-agricultural employment report will determine the Fed's next policy measures and promote the strengthening of the dollar in the near future. In addition, Canadian employment data will provide clues about the strength of the domestic economy. This and global oil price dynamics will affect the Canadian dollar and provide a new direction for the US dollar to Canadian dollar exchange rate.

On the upside, resistance mainly focuses on 1.2591, 1.2625, 1.2670, and on the downside, support mainly focuses on 1.2514, 1.2480, and 1.2423.

The good days for the Canadian dollar are yet to come

The Canadian dollar weakened in the third quarter, although it is still relatively favorable to the Canadian economy. Looking ahead, economists at the Bank of Canada predict that the U.S. dollar against the Canadian dollar will fall to the 1.20 level next year.

"Given that energy prices will not fall sharply in the next few months, we think the Canadian dollar should appreciate against the U.S. dollar."

"In view of the recent performance of the Canadian labor market, as well as the positive outlook for commodity prices and nominal GDP, we continue to expect the Bank of Canada to reduce the scale of quantitative easing again in October."

"Given that we have raised our forecasts for oil and natural gas prices, we now believe that the U.S. dollar/Canadian dollar will reach 1.20 in 2022."

(Daily chart of USD/Canadian dollar)

At 19:32 GMT+8, the US dollar was quoted at 1.2541 against the Canadian dollar.