Crude Oil Price Impact
Crude oil prices have reached multi-year lows due to concerns over potential trade wars affecting fuel demand. Additionally, some OPEC+ members are advancing plans to phase out production cuts, raising oversupply fears.
Political uncertainty related to Canada’s snap election and disappointing domestic data further weaken the Loonie, adding support to USD/CAD. US-Canada trade tensions may push the currency pair higher, particularly with Canada’s announced tariffs on US vehicle imports.
The US Dollar is maintaining modest recovery after stronger-than-expected Nonfarm Payrolls and hawkish comments from the Federal Reserve. However, concerns about a US economic slowdown from tariffs may limit further USD appreciation against the CAD.
Market Behavior Analysis
What the existing summary lays out is a market behaving in response to clear economic signals, most of which heavily favour the USD over the CAD for now. From a purely directional view, we’re observing continued buying interest in USD/CAD, driven by a declining Loonie that finds little relief from domestic or commodity-based support. Crude oil—the main barometer for Canadian currency strength—has weakened further as speculation builds around weakened global demand and a shift in OPEC+ dynamics. Canada’s reliance on energy exports means each drop in oil prices extracts value from the currency.
Employment readings in Canada have underwhelmed, offering no resistance against the broader sell-off. There is also the ripple effect of a broader sentiment shift away from risk, which automatically lifts the US Dollar, especially in times of political instability. That’s exactly what has hit Canadian markets: political vulnerability through election uncertainty has reduced investor willingness to hold CAD. And with cross-border tensions now ticking higher—mainly over proposed vehicle tariffs—the outlook for bilateral trade is muddy at best.
On the US side, recent payroll data delivered better-than-feared figures. These hint that the jobs engine is still moving along even as investors start to brace for broader trade-related slowdowns. There’s also no ambiguity from the central bank. The message has skewed hawkish in tone, pulling rate expectations higher and nudging up yields. For the time being, the USD gains on both yield differentials and its positioning as a safety bid.
However, it’s not just upward without cost. There’s growing concern that broader US macro conditions could show strain if tariffs start taking a toll on supply chains. That prospect, if it materialises, would cap committal long positions in the Dollar and potentially invite sharp corrections.
From our point of view, watching how the pair behaves around that 100-day SMA is key. The recent recovery from the 1.4030 zone indicates buyers are stepping in at deeper support levels. We’re seeing moderate daily performances—about 0.25% today—but without a clean close and sustained price action above that moving average line, buyers may hesitate before committing further. That said, so far there’s little pushback from sellers.
The 1.4200-1.4250 region needs to be marked clearly on charts. Technical buyers will likely stay engaged if price action respects this zone. However, if we return to test that 1.4025-1.4030 range and close below it, we could see unwinding. For now, we remain aware that Canadian fundamentals are not offering any reason to step in and buy through these levels.
Looking forward a few sessions, most of what will matter revolves around oil and rates. If crude keeps heading lower, CAD bulls may stay sidelined. And if the Fed continues to communicate with firmness and back it with data, further Dollar appreciation is not off the table. But any hint of a weaker US inflation print or dovish lean shifts risk-reward in other directions. We remain mindful of any unexpected data events, especially with both nations in politically sensitive settings that may weigh on sentiment.
