USD/CAD sees downside below 1.3680 Middle East tensions improve oil price outlook

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• USD/CAD refreshes day low as higher oil prices strengthen the Canadian Dollar.
• Canadian Retail Sales report indicates that automobile demand remained weak.
• The US Dollar turned soft due to neutral guidance from Fed Powell.

The USD/CAD pair faces selling pressure after a less-confident pullback move to near the round-level resistance of 1.3700 in the early New York session. The Loonie asset is expected to deliver a fresh downside below 1.3680 as the Canadian Dollar has strengthened due to upbeat oil prices.

The demand for oil improves due to escalating Middle East tensions, which would tighten the oil supply amid disruption in the oil supply chain. In addition to that, the United States Department of Energy (DOE) has announced the refilling of the Strategic Petroleum Reserve (SPR). The US government has been drawing oil from SPR since the onset of the Russia-Ukraine war.

It is worth noting that Canada is the leading exporter of oil to the United States and higher oil prices strengthened the Canadian Dollar.

Meanwhile, Statistics Canada has reported better-than-anticipated Retail Sales data for August. Monthly Retail Sales contracted at a slower pace of 0.1% while economists projected a decline of 0.3%. In July, the Retail Sales grew by 0.4%. Retail Sales excluding automobiles expanded by 0.1% against expectations of a stagnant performance.

The Retail Sales report indicates that automobile demand remained weak as households are facing the burden of higher borrowing costs.

The US Dollar turned soft as Federal Reserve (Fed) Chair Jerome Powell delivered neutral guidance on interest rates. Fed Powell conveyed that higher US Treasury yields have significantly tightened overall financial conditions.