USD/CAD has declined for three consecutive sessions, trading near 1.4270 during Asian hours. The drop follows suggestions that Canada may be classified under the lowest tier of impending US tariffs.
The strengthening Canadian Dollar is also supported by rising oil prices, which are around $69.10 per barrel due to supply concerns related to Middle East tensions and a notable decrease in US crude inventories.
Conversely, the USD finds some support ahead of President Trump’s tariff announcement, with the US Dollar Index at approximately 104.30.
Federal Reserve Governor Adriana Kugler reaffirmed that the Fed’s monetary policy remains restrictive, noting slower progress towards the 2% inflation target and describing recent inflation gains as “unhelpful.”
The recent downward trend in USD/CAD is rooted in stronger fundamentals for the Canadian Dollar. Market participants are reacting to expectations that Canada could face a more favourable designation in the forthcoming US tariffs, which may give the loonie an edge over its counterpart. Additionally, oil prices are contributing to the momentum, trading around $69.10 per barrel, a level supported by both geopolitical concerns in the Middle East and shrinking US crude inventories.
Meanwhile, the greenback is attempting to hold its ground, bolstered in part by anticipation ahead of the White House’s policy decisions. The US Dollar Index, sitting near 104.30, reflects some level of stability, though the broader outlook remains uncertain. Concerns persist around Federal Reserve policy, as Governor Kugler reiterated that policy remains tight while inflationary progress towards the 2% goal has slowed. We take note of her remark labelling recent inflation data as “unhelpful”, a comment that underscores the Fed’s cautious stance moving forward.
For those tracking derivatives, volatility is likely given the competing forces at play. The market has not yet fully priced in the impact of potential trade reclassifications, leaving room for further adjustments. Oil dynamics will also be decisive, as supply-side contractions tend to lend strength to the Canadian Dollar. On the other hand, the US currency could see renewed support if tariffs target key economies, reinforcing its position as a safe-haven asset.
In the coming weeks, attention should be on oil price trends and any shifts in trade policy language, as either could quickly alter the trajectory of USD/CAD. Additionally, inflation statements from policymakers warrant close monitoring, particularly if further signals emerge suggesting that restrictive monetary policy may be sustained for longer than previously anticipated.
