- USD/CAD is finding it difficult to attract buyers, although several converging factors are preventing further declines.
- Depressed Crude Oil prices are weighing on the Canadian Dollar, providing support to the USD/CAD exchange rate despite a slight strengthening of the US Dollar.
- Expectations of aggressive interest rate cuts by the Federal Reserve are likely to limit the US Dollar’s upside potential, thereby capping any significant recovery for the USD/CAD pair.
The USD/CAD pair has entered a phase of bearish consolidation during Thursday’s Asian trading session, fluctuating narrowly below the 1.3800 level. This level is near the lowest point the pair has reached since October 2025.
The Canadian Dollar (CAD) continues to benefit from the Liberal Party’s victory in the Canadian federal election. This outcome strengthens Prime Minister Mark Carney’s position in ongoing trade negotiations with the United States. However, the recent sharp decline in Crude Oil prices, which have fallen to a near three-week low, is offsetting these positive influences. As the Canadian Dollar is often correlated with oil prices, this decline is limiting any substantial gains for the currency. This, coupled with a modest strengthening of the US Dollar (USD), is providing a tailwind for the USD/CAD pair. Market participants are closely watching upcoming Canadian economic data releases, including the latest inflation figures, which could further influence the Bank of Canada’s monetary policy decisions.
According to preliminary estimates, the US economy unexpectedly contracted during the first quarter of 2025. This contraction, coupled with ongoing concerns regarding US President Donald Trump’s unpredictable trade policies, is fueling worries about a potential global recession. Such a recession is expected to negatively impact fuel demand, further pressuring oil prices. Adding to the downward pressure on oil is the expectation that several OPEC+ members may propose accelerating output increases for the second consecutive month in June. These factors are collectively creating headwinds for crude oil, and by extension, providing some support to the USD/CAD exchange rate. Investors are also keenly awaiting the Federal Reserve’s upcoming policy meeting, where further guidance on interest rate adjustments is expected. The market consensus currently anticipates at least one, if not two, rate cuts by the end of the year, reflecting concerns about the US economic outlook.
