USD/CAD drifts lower for the third straight day amid a combination of negative factors.
Rising Crude Oil prices and reduced bets for a June BoC rate cut underpin the Loonie.
Fed rate cut bets and US fiscal concerns weigh on the USD, and contribute to the slide.
The USD/CAD pair extends the previous day's breakdown momentum below a one-week-old trading range and attracts sellers for the third successive day on Wednesday. This also marks the fourth day of a negative move in the previous four and drags spot prices below the 1.3900 mark, or a nearly two-week low during the Asian session.
Crude Oil prices shot to a nearly one-month high amid reports that Israel is preparing a strike on Iranian nuclear facilities, which raises concerns about supply disruption from the Middle East region. Moreover, signs of faltering US-Iran nuclear talks lend support to the black liquid, which, in turn, is seen underpinning the commodity-linked Loonie. Moreover, hotter-than-expected Canadian core inflation figures released on Tuesday dampened hopes for a Bank of Canada (BoC) rate cut in June and provided an additional boost to the Canadian Dollar (CAD).
This, along with the prevalent US Dollar (USD) selling bias, exerts additional downward pressure on the USD/CAD pair. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, drops to a two-week low amid concerns about the US fiscal health and bets that the Federal Reserve (Fed) will lower borrowing costs further in 2025. Moreover, Fed officials on Tuesday raised concerns over the US economic outlook amid the uncertainty over the Trump administration's policies. Apart from this, renewed US-China trade tensions weigh on the buck.
The USD/CAD pair's downfall could further be attributed to some technical selling following a breakdown below the lower boundary of a short-term trading range. This, along with the aforementioned fundamental backdrop, suggests that the path of least resistance for the USD/CAD pair remains to the downside and supports prospects for deeper losses. In the absence of any relevant economic data on Wednesday, speeches from influential FOMC members will drive the USD demand. Apart from this, Oil price dynamics should provide some impetus to spot prices.
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