Oil prices decline combined with central bank policy caution, USD/CAD awaits directional choice

Huitong Finance APP News — The Canadian dollar has shown some resilience recently, maintaining relative stability despite the adverse impact of oil price corrections. The USD/CAD exchange rate slightly retreated to around 1.3735 during the Asian session, after briefly reaching a high of 1.3748, over two weeks ago, indicating a weakening of short-term dollar momentum. From the driving factors, the CAD’s movement is mainly influenced by energy prices, central bank policies, and dollar fluctuations.

From a fundamental perspective, Canada, as the largest oil exporter to the United States, is highly sensitive to oil price fluctuations. Recently, WTI crude oil prices have sharply declined from high levels, falling to around $92.5, which directly pressures the CAD. The main reasons for the oil price decline include a marginal easing of geopolitical tensions, with U.S. President Donald Trump explicitly stating no support for further attacks on energy facilities, and Israel’s actions becoming more restrained, reducing market fears of supply disruptions. Additionally, signals from Europe and Japan indicating efforts to ensure smooth energy transportation routes have also weakened oil risk premiums. It is important to note that falling oil prices typically weaken the CAD’s export support, which is one of the key reasons why USD/CAD remains elevated.

In terms of monetary policy, the Bank of Canada’s latest decision kept interest rates unchanged at 2.25%, indicating a wait-and-see stance. Despite ongoing inflation pressures, limited economic growth momentum has made the central bank cautious about further rate hikes. This neutral policy stance has somewhat limited the CAD’s upside potential.

Meanwhile, the dollar’s movement also significantly impacts USD/CAD. Previously, the dollar index fell by over 1%, but then stabilized and rebounded around 99.3. The fluctuation in the dollar is driven by the convergence of major global central bank policies. The Bank of Japan, Bank of England, and European Central Bank have all signaled a dovish stance, reducing market expectations of Fed policy independence and weakening the dollar’s relative strength. However, it should be noted that the Federal Reserve still maintains relatively high interest rates, providing medium-term support for the dollar.

On the data front, markets are paying attention to upcoming Canadian retail sales data, expected to increase by about 1.5% month-over-month. Strong data could help ease concerns about economic slowdown and support the CAD. Conversely, weaker-than-expected data could further pressure USD/CAD higher.

From a technical perspective, on the daily chart, USD/CAD remains in a broadly oscillating upward channel, staying above 1.36, indicating a medium-term bullish trend. The current price is near previous highs, with around 1.3750 forming a short-term key resistance. A break above this level could push the pair toward 1.38. Support levels are at 1.3680 and 1.3600; a break below these could weaken the upward structure.

On the 4-hour chart, USD/CAD shows a high-level consolidation pattern, testing above 1.3740 multiple times without a clear breakout, indicating strong resistance overhead. Short-term moving averages are flattening, and momentum indicators suggest the market is in a consolidation phase. A decline below 1.3680 could trigger a short-term correction; conversely, a break above 1.3750 may extend the upward trend.

Overall, the current USD/CAD movement is caught between oil price influences and dollar fluctuations, with the short-term direction remaining uncertain but volatility likely to persist.

Editor’s summary:

The core contradiction facing the CAD is the dual influence of oil price corrections and dollar volatility. Without sustained upward momentum in oil prices, the CAD is unlikely to form a clear upward trend in the short term. Future movements will depend on changes in energy prices, Canadian economic data, and global central bank policies. Overall, USD/CAD is likely to remain range-bound in the near term, with medium-term focus on whether oil prices will shift again.