The USD/CAD pair traded near a six-month low of 1.3802 during Monday’s Asian session, under pressure from a weaker US Dollar (USD). The US Dollar Index (DXY) dropped over 0.50%, reaching around 98.50, its lowest level since April 2022, as concerns over the economic fallout from US tariffs and inflation risks continue to weigh on the Greenback. The 2-year US Treasury yield also fell by more than 1%, settling at 3.75%, further dampening USD sentiment.
Federal Reserve (Fed) Chair Jerome Powell warned that persistent inflation combined with a sluggish economy could lead to stagflation risks, adding to uncertainty surrounding the US economic outlook. Reports suggesting President Trump’s frustration with Powell, even considering his potential removal, also contributed to market volatility. However, these developments have had limited immediate effect on market sentiment.
Despite the weakening USD, USD/CAD’s downside potential remains capped by declining crude oil prices. The Canadian Dollar (CAD), often sensitive to oil price movements, faces pressure as WTI Oil dropped over 1%, trading around $62.80 per barrel. The fall in oil prices follows reports of progress in US-Iran nuclear negotiations, easing fears of supply disruptions from the Middle East. Both countries agreed to begin drafting a framework for a potential nuclear deal, which could lead to a reduction in geopolitical risk that has historically supported higher oil prices.
Technical View: The USD/CAD pair remains under pressure but may struggle to extend its decline further due to the support offered by oil-linked factors. Immediate resistance is seen near 1.3850, while a breach of 1.3800 could open the door for a deeper decline. On the flip side, oil prices could limit CAD strength, potentially cushioning USD/CAD’s fall below 1.3800.
Outlook: The USD/CAD pair could remain range-bound, driven by weaker USD sentiment, while any significant oil price shifts or further developments in US-Iran relations may provide the catalyst for more pronounced movements.
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