USD/CAD price weakens as oil rebounds and Fed rate cut bets intensify
USD/CAD price chart showing resistance at 1.4275 and support near 1.4200
The USD/CAD pair declined on Tuesday, slipping below 1.4245, as the Canadian dollar (CAD) gained strength from rebounding crude oil prices and a weaker U.S. dollar (USD). The pair dropped 0.15% intraday, reversing a two-day uptrend.
The rise in oil prices provided crucial support to the CAD, given Canada’s reliance on energy exports.
Oil prices saw a modest recovery from Monday’s year-to-date lows, helping to offset economic concerns surrounding US President Donald Trump's trade tariffs on Canadian imports, set to take effect on March 4. While these tariffs pose risks to the Canadian economy, stronger oil prices and shifting Bank of Canada (BoC) rate cut expectations helped stabilize the CAD.
USD/CAD price analysis (Jan 2025 - Feb 2025) Source: TradingView.
Weaker U.S. data fuels Fed rate cut speculation
A string of disappointing U.S. economic data, including flash PMI readings, signaled slowing business activity, reinforcing market expectations for Federal Reserve (Fed) rate cuts in 2025. The latest figures showed the U.S. private sector expanded at its slowest pace in 17 months, adding to the case for easing monetary policy.
The US dollar index (DXY) struggled to capitalize on its recent rebound, with traders anticipating potential Fed interest rate cuts later this year. Meanwhile, the BoC appears less likely to ease policy in the near term, as Canadian consumer inflation showed a slight uptick, prompting investors to scale back their expectations for a March rate cut.
Market outlook and key events to watch
Traders are now looking ahead to key U.S. economic releases, including the Conference Board's Consumer Confidence Index and the Richmond Manufacturing Index. Additionally, comments from influential Federal Open Market Committee (FOMC) members are expected to shape USD sentiment.
Meanwhile, oil price movements and developments in U.S.-Canada trade relations could drive USD/CAD volatility in the coming sessions. The pair remains vulnerable to further downside pressure if oil prices continue their rebound and Fed rate cut bets intensify.
As previously discussed, USD/CAD struggles to hold gains amid diverging Fed-BoC rate expectations and stronger oil prices.
