US dollar falls against Canadian dollar after lower oil inventory numbers

The US dollar has fallen during the trading session on Wednesday against the Canadian dollar as oil inventories reported lower than expected numbers. This of course is bullish for oil, which by extension is bullish for the Canadian dollar. We fell as low as 1.2770 initially before bouncing slightly, and I do see a significant amount of support just below the 1.2750 handle. Because of this, I would expect a bounce as I think there is more interest in the interest rate differential than anything else right now. True, the Canadian dollar is a proxy for the oil markets and that will continue to be the case, but the headline story right now is the 10-year interest rates in America.

As those interest rates rise, that drives demand for the greenback. That of course will translate into a higher exchange rate here, especially considering that the Canadian economy seems to be cooling down and interest rates probably are going to be going any higher anytime soon. Quite frankly, one of the few things that is keep in the Canadian dollar somewhat afloat is the oil market. If that turns around, we will explode to the upside. I believe that we will probably see some type of bounce relatively soon, which should end up being a buying opportunity, especially if the 10-year interest rate breaks above the 3.06% level in the United States, a major level that most traders I know are watching. Shorting is not possible until we make a fresh, new low.