USDCAD continues its steady ascent since the start of the year and has been hovering around two-month highs these days. The pair climbed to the 1.33 handle which acts as the immediate resistance now. The bearish impetus in the Canadian dollar is due to a strong greenback and low oil prices, which is a powerful negative combination to a commodity currency.
The US dollar has been rising across the board, supported by unexpectedly strong economic data out of the United States. In particular, the ADP employment rose by 291,000 versus +156,000 expected, the US service PMI arrived at 53.4 versus 53.2 expected while the composite PMI came in at 53.3 last month, up from 52.7 previously. ISM mom-manufacturing improved to 55.5, exceeding expectations of 55. By the way, dollar demand persists ahead of the key US NFP jobs data due later today. Should the figures surprise to the upside, the upside pressure in the pair could intensify, suggesting the 1.33 handle may be challenged by the end of the week.
Also, the Canadian dollar feels the pressure from the oil market. Brent failed to break above the $56.50 intermediate resistance and resumed the decline, trying to cling to the $55 figure early on Friday. Oil traders continue to express concerns over the spread of the Chinese coronavirus and its negative consequences for energy demand. Also, there is heightened uncertainty in the markets now as the OPEC+ technical committee still haven’t made its final decision on the additional output cuts. Of note, Russian Energy Minister Alexander Novak said earlier today that they will announce their decision on OPEC+ proposal to extend or deepen oil production next week. Against this backdrop, Brent will hardly be able to stage a sustainable recovery any time soon, so this factor will likely continue to weigh on the Canadian dollar at least in the short term.
From the technical point of view, the pair needs to challenge the 1.3310 region in order to extend gains to fresh highs, with the next upside target coming around 1.3330. On the downside, the immediate support comes around 1.3260. at this stage, the risks in the pair are still skewed to the upside.