Canadian Dollar rallies to nearly two-week top as USD weakens further ahead of US NFP

• USD/CAD continues losing ground for the fourth straight day amid a combination of negative forces.
• Rising Crude Oil prices underpin the Loonie and exert pressure amid the Fed-driven USD weakness.
• The divergent Fed-BoC outlooks back the case for further losses as trades look to the US NFP report.

The USD/CAD pair remains under some selling pressure for the fourth straight day and drops to a nearly two-week trough on Wednesday. Spot prices, however, manage to hold above the 1.3500 psychological mark heading into the European session as traders keenly await the delayed release of the closely-watched US monthly employment details.

The popularly known US Nonfarm Payrolls (NFP) report, originally scheduled for early February, will be looked upon for more cues about the Federal Reserve's (Fed) rate-cut path. The outlook, in turn, will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide a fresh directional impetus to the USD/CAD pair. Heading into the key data risk, dovish Fed expectations keep the USD depressed near its lowest level in over a week.

Tuesday's disappointing release of US Retail Sales comes on top of signs of weakness in the US labor market and prompts market participants to downgrade their economic growth estimates for the fourth quarter. This, in turn, backs the case for further policy easing by the US central bank in 2026. Apart from this, concerns about the Fed's independence and a generally positive risk tone dent the Greenback's safe-haven status, exerting some pressure on the USD/CAD pair.

Meanwhile, higher Crude Oil prices underpin the commodity-linked Loonie on the back of the Bank of Canada's (BoC) neutral policy stance, further contributing to the offered tone surrounding the currency pair. In fact, the central bank had said that elevated levels of economic and geopolitical uncertainty were behind its decision to hold rates in January. The BoC added that the uncertainty is bleeding into rate projections, which now run from cuts to hikes to holds for 2026.

This, in turn, backs the case for an extension of the USD/CAD pair's downtrend witnessed over the past week or so. That said, bearish traders might opt to wait for a convincing break and acceptance below the 1.3500 mark before placing aggressive bets. Nevertheless, the aforementioned bearish fundamental backdrop suggests that any attempted recovery could be seen as a selling opportunity and runs the risk of fizzling out rather quickly.