The USD/CAD pair continued its downward trajectory for the third consecutive session on Wednesday, extending the previous day’s breakdown below a narrow, one-week trading range. The pair slipped beneath the 1.3900 mark during Asian hours, hitting a nearly two-week low and marking the fourth negative close in five days.
The Canadian Dollar (CAD) found support from a combination of rising crude oil prices and stronger-than-expected domestic inflation data. Oil surged to a near one-month high following reports that Israel may be preparing to strike Iranian nuclear sites, stoking fears of supply disruptions in the Middle East. Further support for oil prices came from signs of stalled U.S.-Iran nuclear negotiations—an environment that traditionally benefits the commodity-linked Canadian currency.
Adding to the Loonie’s strength, Tuesday’s hotter-than-anticipated core inflation figures from Canada dampened expectations for a Bank of Canada rate cut in June. This shift in monetary policy outlook further bolstered the CAD against its U.S. counterpart.
Meanwhile, the U.S. Dollar remained under pressure, with the Dollar Index (DXY) falling to a two-week low. The Greenback’s weakness stems from ongoing concerns about the United States’ fiscal stability, coupled with growing expectations that the Federal Reserve could lower interest rates in 2025. Fed officials voiced caution over the economic outlook on Tuesday, citing risks linked to uncertainty over trade policies enacted during the Trump administration. Renewed U.S.-China trade tensions have also added to the dollar’s woes.
Technically, the USD/CAD’s breach of the lower boundary of its recent trading range triggered additional selling pressure, reinforcing the bearish momentum. With no major economic releases on Wednesday, investors will turn their attention to speeches from Federal Open Market Committee (FOMC) members for clues on policy direction. At the same time, oil price movements are likely to play a key role in driving short-term action in the USD/CAD pair.
Given the current macroeconomic backdrop and technical setup, the path of least resistance for USD/CAD remains tilted to the downside, with deeper losses appearing increasingly likely.
