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- USD/CAD meets with a fresh supply amid a softer USD, though the downside seems limited.
- Retreating oil prices, the divergent BoC-Fed expectations, and Trump’s tariffs favor USD bulls.
- Traders look to flash US PMIs for some impetus as the focus remains on the FOMC next week.
The USD/CAD pair attracts fresh sellers during the Asian session on Friday and currently trades around the 1.4070 zone, down 0.10% for the day amid a softer US Dollar (USD). Spot prices, however, hold above the previous day’s swing low and remain on track to register modest gains for the first time in three weeks.
Crude oil prices retreat from the highest level since June 11 amid some profit-taking heading into the week. Adding to this, divergent Bank of Canada (BoC) and US Federal Reserve (Fed) policy expectations, along with US President Donald Trump’s new tariffs, contribute to keeping a lid on the commodity-linked Loonie. Moreover, the underlying USD bullish tone warrants some caution before placing aggressive bearish bets on the USD/CAD pair.
This week’s soft Canadian consumer inflation figures reaffirmed bets that the BoC will keep interest rates unchanged through the remainder of 2026. In contrast, traders have been pricing in a greater chance that the US central bank will raise borrowing costs by the end of this year amid concerns about energy-driven inflation. Apart from this, a further escalation of tensions between the US and Iran should help limit deeper losses for the safe-haven buck.
Meanwhile, the Trump administration is set to impose sweeping new tariffs of 10% to 12.5% on 60 of the top trading partners, covering nearly all of the country’s imports. This further tempers investors’ appetite for riskier assets amid persistent geopolitical uncertainties and favors USD bulls, making it prudent to wait for some follow-through selling before confirming that the USD/CAD pair’s recovery from over a one-month low has run out of steam.
Traders now look forward to the release of the flash US PMIs, which might influence the USD. Furthermore, fresh developments surrounding the Middle East crisis will drive oil price dynamics and provide some impetus to the USD/CAD pair amid a broadly constructive setup. The focus will then shift to the highly-anticipated two-day FOMC meeting next week, which will help in determining the near-term trajectory for the Greenback and the currency pair.
