USD/CAD slides further below mid-1.3500s, lowest since September 29 amid fresh USD selling

• USD/AD drifts lower for the second straight day and drops to over a two-month low on Friday.
• Fed rate cut bets, the risk-on mood undermine the USD and exert some pressure on the pair.
• Investors now look to Canadian jobs data, US ISM PMI and Fed Chair Jerome Powell’s speech.

The USD/CAD pair remains under some selling pressure for the second straight day on Friday and drops to over a two-month low during the Asian session. Spot prices currently trade around the 1.3540-1.3535 region and seem vulnerable to prolonging the recent well-established downtrend witnessed over the past three weeks or so.

The US Dollar (USD) meets with a fresh supply and for now, seems to have stalled a two-day recovery from its lowest level since August 11 set on Wednesday, which, in turn, is seen exerting pressure on the USD/CAD pair. Investors seem convinced that the Federal Reserve (Fed) will not hike interest rates again and may begin easing its monetary policy as early as March 2024. The bets were reaffirmed by the US macro data released on Thursday, showing that inflation continued to moderate in October and a slowing labor market. The dovish outlook, meanwhile, triggers a fresh leg down in the US Treasury bond yields and weighs on the buck.

Apart from this, the underlying bullish tone across the global equity markets, further dents the Greenbak's relative safe-haven status. The USD bulls, meanwhile, shrugged off the overnight hawkish remarks by Federal Reserve (Fed) officials. In fact, New York Fed Bank President John Williams, along with San Francisco Fed President Mary Daly, pushed back against expectations for a quick pivot to rate cuts and left the door open to further policy tightening should the progress on inflation stall. This suggests that the path of least resistance for the buck is to the downside and supports prospects for a further depreciating move for the USD/CAD pair.

That said, Crude Oil prices remain on the defensive below a two-and-half-week high touched on Thursday amid concerns over worsening demand in China and the fact that the new production cuts announced by the OPEC+ were voluntary. The announcement came amid some disagreements among OPEC+ members over reductions in output and also disappointed traders hoping for deeper supply cuts. Furthermore, data on Thursday showed that the Canadian economy unexpectedly contracted at an annualized rate of 1.1% in the third quarter. This, in turn, could undermine the commodity-linked Loonie and lend support to the USD/CAD pair.

Traders might also refrain from placing aggressive bets ahead of Friday's release of Canadian monthly employment details and the US ISM Manufacturing PMI. The focus, however, will remain on Fed Chair Jerome Powell's appearance later during the US session, which will play a key role in influencing the USD price dynamics and provide some meaningful impetus to the USD/CAD pair. Nevertheless, spot prices remain on track to register losses for the third straight week – also marking the fourth week of a fall in the previous five.

Technical levels to watch