USD/CAD: Here’s why the Canadian dollar crashed to a 6-month low

The USD/CAD price spiked on Monday after the latest OPEC+ deal coincided with the rising worries of the rising Covid-19 cases. The pair rose to 1.2785, which was the highest level since February 5. The price was also 6.50% above the lowest level this year.

Canadian dollar retreats

The Canadian dollar eased after members of OPEC+ reached a deal to boost production by 400k barrels per day. This was a major breakthrough after the two sides struggled to reach an agreement in their formal meeting two weeks ago. 

The decision to increase oil production came at a time when demand concerns have emerged. Investors are afraid that the rising number of Covid cases will lead to lower demand. This is primarily because countries like Australia, Thailand, and France have started thinking about new lockdowns. 

As a result, the confluence of higher production at a time when there are supply concerns means that investors are afraid of oil imbalance. Subsequently, the price of crude oil declined sharply today, with Brent and West Texas Intermediate (WTI) falling by more than 2% today. 

Oil prices are important for the Canadian dollar because of the vast amount of oil that Canada exports since it is the fourth-biggest producer in the world. Indeed, other currencies tied to oil like the Mexican peso and Norwegian krone also declined.

The USD/CAD also rose after the recent strong economic data from the United States. On Friday, data showed that the US retail sales rose by 0.1% in June, which was better than expected. Earlier data showed that the number of initial jobless claims declined to 360,000 while the consumer price index rose by 5.4%. 

Later this week, the pair will react to the latest US building permits and housing starts data and Canadian new home sales numbers.

USD/CAD forecast

The daily chart shows that the USDCAD pair has been in a strong upward trend lately. That has seen it move above the 50, 100, and 200-day moving averages signalling that bulls are in control. The pair’s Relative Strength Index (RSI) has also been in an upward trend and is currently close to the overbought level. Therefore, the pair will likely keep rising as bulls target the next key resistance level at 1.300. On the flip side, a drop below 1.2500 will invalidate the bearish trend.