USD/CAD: Loonie rally stalls ahead of key support; Commodities Diverge

• Oil rally cools and prices settle below $86 a barrel
• US diesel export to Europe approach highest levels since 2019
• Wall Street awaits key CPI report and bank earnings

The Canadian dollar continues to rally against the US dollar as global bond prices slide and oil prices soften after the surge from the Israel-Hamas war.  The North American growth exceptionalism story has seen both the US and Canadian excel.  Both countries posted robust payrolls data but the outlook for further tightening by the Fed and BOC are easing.

The US dollar has weakened for a fifth straight session, which would be the longest losing streak since July.   The Canadian dollar saw price action respect the 1.3800 level and if yields continue to slide, it seems further loonie strength could persist.  The USD/CAD daily chart highlights a 1.3100 to 1.3800 range. If bearish momentum continues, prices could target the 50-day SMA at the 1.3535 level.  Major support lies at the 1.3461, which could be the extent of US dollar weakness given the US economic outlook.  To the upside, the 1.3700 handle provides key resistance.

USD/CAD Daily Chart

Oil

Crude prices are lower as profit-taking settled in after it was clear a fresh catalyst was needed to take prices above the $90 a barrel level.  Oil is still looking very bullish on the potential supply risks that are stemming from both wars and over optimism that China is going to whatever it takes for them to meet their growth targets.

Energy traders will have lots of time to assess how the Israel-Hamas conflict impacts Saudi production, if Iranian crude will face sanctions, and if other OPEC+ members will pick up their production levels.  It seems, the oil market will remain tight or get even tighter as we head into the winter.

Gold

Gold is having a great day as more dovish Fed speak sends Treasury yields into freefall.  It is easy to get excited about the rush back into gold, but the drop in bond yields probably won’t last given inflation expectations remain elevated. Gold is going to find a home between $1860 and $1900 levels.  The flight-to-safety isn’t’ over yet, especially considering all the risks to the outlook for the consumer.

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