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USD/CAD rises to key resistance on Fed expectations, falling crude oil

  • USD/CAD reached a key resistance level at 1.3400 on Thursday as the US dollar continued to rise on higher expectations of a Federal Reserve rate hike, and the energy-linked Canadian dollar was dragged down by falling crude oil prices.
  • Expectations of a mid-March rate hike by the Fed have risen dramatically as Fed officials continue to give hawkish signals. These signals could become even louder on Friday, when several of those officials, including Fed Chair Janet Yellen, will be giving key speeches.
  • Crude oil prices dropped sharply on Thursday after it was seen that Russia’s oil production showed no change in February, which implied that the major oil producer may not be complying with OPEC’s deal to cut production, in which Russia is a participant.
  • On Wednesday, the Bank of Canada left its overnight rate unchanged at 0.50%, as expected. In doing so, the central bank cited "persistent economic slack in Canada, in contrast to the United States.”
  • USD/CAD’s rise this week has been dramatic, further extending its mid-February rebound off major support at the 1.3000 level.
  • The current 1.3400 level represents a key historical support/resistance level and a critical juncture for USD/CAD.
  • In the event of further hawkishness emanating from Friday’s Fed speakers and/or further weakness in crude oil, a breakout above 1.3400 could lead to an extension of USD/CAD’s recent surge. A strong breakout could open the way towards a key resistance target at 1.3600, which is the area of the last major high in late December.

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