Canadian Dollar stands firm near two-week high vs weak USD amid bullish oil prices
- USD/CAD continues to be pressured by a combination of factors on the last day of the week.
- Declining US bond yields keep the USD depressed as Warsh’s remarks fail to lend support.
- Oil prices sit near a three-week high, underpinning the Loonie and weighing on spot prices.
The USD/CAD pair remains under some selling pressure for the second straight day on Friday, trading around the 1.4175-1.4170 region during the Asian session and close to an over two-week low set the previous day. Spot prices seem poised to register weekly losses, and a combination of negative factors backs the case for further depreciation.
The US Dollar (USD) prolongs this week's sharp retracement slide from the highest level since April 2025 for the third consecutive day and fails to gain any respite from US Federal Reserve (Fed) Chair Kevin Warsh's neutral remarks, which did little to alter monetary policy expectations. That said, declining US bond yields keep USD bulls on the defensive. Meanwhile, crude oil prices hold steady near a three-week top, which, along with a hawkish shift in Bank of Canada (BoC) Governor Tiff Macklem's tone, underpins the commodity-linked Loonie and exerts pressure on the USD/CAD pair.
In fact, Macklem said at the Annual Meetings of the International Monetary Fund and World Bank Group that it is harder to look through a rise in energy prices for longer. This, in turn, suggests that the BoC could consider raising the key policy rates rather than cutting them. However, the US-Canada trade tensions might hold back traders from placing aggressive bullish bets on the Canadian Dollar (CAD). Moreover, the growing acceptance that the US central bank will raise borrowing costs again in December, along with escalating Middle East conflicts, could support the buck and the USD/CAD pair.
The hot US Consumer Price Index (CPI) and Producer Price Index (PPI) reports, released this week, pointed to broadening price pressures beyond energy products, underpinning prospects for further Fed tightening. On the geopolitical front, the Iran-backed Houthi group carried out a deadly missile attack targeting Aden's presidential palace, the seat of Yemen's Saudi-backed and internationally recognised government. Moreover, the US-Iran standoff over the Strait of Hormuz backs the case for the emergence of some USD dip-buying and warrants caution for USD/CAD bears.
USD/CAD 4-hour chart
Technical Analysis
The USD/CAD pair trades maintains a constructive bullish tone above the 23.6% Fibonacci retracement at 1.4173. Moreover, spot prices hold above a dense band of underlying Fibonacci levels between the 38.2% retracement at 1.4094 and the 50.0% retracement at 1.4030, while the 100-period Exponential Moving Average (EMA) on the 4-hour chart, at 1.4186, now acts as nearby overhead resistance. This points to a market that is grinding higher but faces a cap unless this barrier is decisively overcome.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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