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Extended crude oil plunge boosts USD/CAD despite US dollar weakness

Crude oil prices extended their recent plunge on Wednesday due in part to reports that Libyan oil fields had resumed previous levels of output after a recent disruption. Despite OPEC’s agreement last week to extend its existing deal limiting production among participating oil producers, crude oil has been pressured on concerns that the deal extension may not be enough to curb global output and keep prices stable if major non-participants in the deal, most notably the US, simply look to increase production.

The resumed drop in crude oil prices on Wednesday pulled down the energy-linked Canadian dollar, which boosted USD/CAD despite a significantly weakened US dollar. In addition, the oil-driven Canadian dollar fell against the greenback even after Canadian GDP data for March that was released on Wednesday came out better than expected at +0.5% against a +0.3% prior consensus forecast.

As the Canadian dollar fell against the US dollar, USD/CAD continued to stay aloft above the bottom of a key parallel uptrend channel extending back to the beginning of the year. Last week, the currency pair bounced off a confluence of support made up of this uptrend channel’s lower border and the important 1.3400 support level.

If OPEC and its non-OPEC partners in the deal do not plan on implementing further measures beyond the current output agreement, global production concerns could continue to weigh on crude prices and, in turn, the Canadian dollar. At the same time, the US dollar remains oversold on a short-term basis ahead of the key US jobs report that will be released on Friday.

Any near-term rebound for the US dollar or continued oil-driven pressure on the Canadian dollar should be seen on the USD/CAD chart as a continued move up from the noted trend channel’s lower border. As long as a breakdown below the channel does not occur, a USD/CAD move higher within the prevailing uptrend could next target the key 1.3600 intermediate resistance level to the upside.

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