On Tuesday, October 6, USD/CAD rose to 1.4293. This is the pair's highest level in the last 18 months. The rally has continued for the third trading session in a row.
Why the Canadian dollar is weakening
The main factor is the drop in oil prices. The Canadian dollar is sensitive to the commodity market, since a significant portion of the country's exports is tied to the energy sector. When oil gets cheaper, pressure on the Canadian currency usually intensifies.
What added pressure
An additional factor was Saudi Aramco's decision to cut its official selling prices for its main oil grade for buyers from Asia. The official selling price shows the premium or discount to the benchmark grade at which an exporter sells oil to a specific region. The reduction in these prices strengthened expectations of a weaker oil market and dealt an additional blow to the Canadian dollar.
What is happening with the US dollar
On the US dollar side, the picture remains mixed. After weak employment data, the market lowered expectations for further tightening by the Fed. Rate futures give about 78% probability that the rate will remain unchanged at the next meeting. Despite this, the weakness of the Canadian currency so far outweighs and continues to support USD/CAD.
The pair looks overheated
The 14-day RSI is around 78.96. A value above 70 usually indicates strong overbought conditions. This does not mean an automatic reversal, but it shows that the rise has been fast and the market may take a pause. At the same time, USD/CAD remains above its short-term averages. The 9-period exponential moving average runs around 1.4202. The 50-period average is around 1.4022.
Where the nearest levels are
On the upside, the market is looking toward the 1.4794 area. The nearest support is around 1.4202. Below that, the next reference point remains the area around 1.4022. Further movement will depend primarily on oil and the Fed's rhetoric before the meeting.
Saw this surge, but within your volume?
Three sessions of movement in one direction on a currency pair already provide a good working trend. But even a strong setup can produce limited results if the account size is small. In prop trading, the company provides the capital: a trader passes an evaluation stage according to its risk rules and gains access to a larger account for a share of the profit. It is better to understand the mechanics in advance, before the next similar move.