Canadian Dollar gains support from higher oil prices amid Saudi pipeline disruptions

USD/CAD halts its three-day winning streak, trading around 1.3870 during Asian hours on Monday. The pair inches lower as the commodity-linked Canadian Dollar (CAD) receives support from elevated oil prices.

Crude oil prices are rising toward nearly four-month highs following a drone attack that forced Saudi Arabia to shut down a major crude pipeline. This disruption has heavily impacted a critical route traditionally used to bypass the Strait of Hormuz. As a precautionary measure, Saudi operations on the East-West pipeline were suspended immediately following Thursday's attacks, and officials have not yet indicated when normal operations will resume.

Canada front-end stability offers near-term anchor for the Dollar

Analysts at Scotiabank note that front-end rate differentials are providing some support for the currency, observing that “front-end US/Canada spreads have held quite stable in the past few days, despite the elevated focus on US rate policy,” a backdrop they believe “should provide some anchoring for the CAD in the short run.”

However, the USD/CAD pair may rebound as the US Dollar (USD) gains support amid aggressive Federal Reserve (Fed) rate-hike bets for Wednesday’s decision following hotter US inflation reports. Financial markets have priced in nearly an 87% probability of a quarter-point rate hike at the Fed's September meeting, up from 59% a week ago, according to the CME FedWatch tool.

The US Consumer Price Index (CPI) accelerated in August, reinforcing expectations that the US central bank will raise interest rates next week. Data released by the Bureau of Labor Statistics on Friday showed that the US CPI rose 0.4% MoM in August, putting the 12-month increase at 3.4%. Both readings came in line with market expectations. Meanwhile, the core CPI, which excludes volatile food and energy prices, increased by 0.3% on a monthly basis, versus 0.2% prior, beating the forecast of 0.2%.

Technical Analysis:

In the daily chart, USD/CAD trades at 1.3870. The pair remains capped in the near term, with the 50-day Exponential Moving Average (EMA) acting as overhead resistance while price holds just above the short-term nine-day EMA at 1.3842. The 14-day Relative Strength Index (RSI) at 49 suggests neutral momentum after the recent recovery, hinting at consolidation below the medium-term trend line rather than a decisive bullish break.

On the topside, a daily close above the 50-day EMA at 1.3913 would be needed to ease the current bearish cap and open the way for a more sustained advance. On the downside, immediate support is seen at the nine-day EMA at 1.3842, and a drop back below this level would reinforce selling pressure and expose further weakness toward recent lows, keeping USD/CAD vulnerable while it trades beneath its primary trend gauge.