Oil rebounds above $90: Why is the Canadian Dollar still falling?

• USD/CAD advances for a third consecutive day and trades around 1.4090 on Wednesday.
• The rebound in Oil prices fails to provide support to the Canadian Dollar.
• The US Dollar remains supported by the prospect of restrictive monetary policy, despite lower US Treasury yields.

USD/CAD extends its advance on Wednesday and trades around 1.4090 at the time of writing, up 0.21% on the day. The pair remains close to its recent highs, supported by a firm US Dollar (USD), while the Canadian Dollar (CAD) struggles to recover losses from the recent decline in Oil prices.

Oil dynamics, however, are becoming less negative for the Loonie. West Texas Intermediate (WTI) rebounds above $90 on Wednesday and gains 0.70% at the time of press, following a sharp decline in previous days. However, the recovery fails to provide support to the Canadian Dollar against a firmer US Dollar.

The rebound in Oil prices comes as markets continue to assess diplomatic developments surrounding the conflict between the United States (US) and Iran. Hopes for de-escalation recently weighed on energy prices, particularly after reports that Iran could reopen the Strait of Hormuz in exchange for reduced US military pressure. Saudi Arabia's efforts to restore an alternative export route are also helping to ease concerns about global Oil supply.

On the US side, the US Dollar nevertheless retains a positive bias. The Federal Reserve (Fed) raised interest rates for the first time in three years and signaled that another increase could follow this year, maintaining a restrictive monetary policy stance that supports the Greenback.

The recent decline in Oil prices, however, helps ease concerns about another acceleration in US inflation. US Treasury yields therefore remain below their recent multi-year highs, which could limit the appeal of the US Dollar and restrain another leg higher in USD/CAD.

The pair is therefore caught between two opposing forces: a US Dollar supported by the Fed's restrictive policy stance and a Canadian Dollar that could benefit from the rebound in Oil prices following the recent sell-off.

USD/CAD technical analysis

In the one-hour chart, USD/CAD trades at 1.4089, maintaining a constructive bullish tone as it holds above the 100-period simple moving average (SMA) near 1.4024 and the 200-period SMA around 1.3969. The pair is grinding higher toward the immediate horizontal barrier at 1.4100, with the Relative Strength Index (14) hovering around 68, hinting at firm upside momentum but approaching overbought territory, which could slow the advance rather than reverse it outright.

On the topside, initial resistance is located at 1.4100, followed by a higher cap at 1.4130, where a break would open the way for a more impulsive extension of the uptrend. On the downside, nearby support is seen around 1.4025, reinforced by the 100-period SMA at 1.4024, while deeper cushions emerge at 1.3974 and 1.3945, in line with the 200-period SMA clustered around 1.3969, which together define the broader bullish floor for any corrective pullbacks.

(The technical analysis of this story was written with the help of an AI tool. Know more.)