USD/CAD price rebounds toward $1.45 as oil weakness and USD demand persist
USD/CAD extends recovery, fueled by oil price declines
The USD/CAD pair is regaining momentum, climbing back toward 1.4500 after briefly retreating to 1.4385. A combination of declining oil prices and renewed U.S. dollar strength has provided support for the pair, reversing part of the previous session’s sharp drop.
The loonie remains under pressure amid uncertainty surrounding trade policies and slowing domestic economic growth.
USD/CAD price analysis (Jan 2025 - Feb 2025) Source: TradingView.
Oil price decline fuels USD/CAD recovery
Crude oil prices have extended their decline for a second consecutive session, dropping to a one-month low as traders react to U.S. President Donald Trump’s decision to delay new tariffs on Canadian and Mexican imports. This decision has temporarily eased concerns over potential supply disruptions from two of the largest oil exporters to the US. However, expectations that Trump’s broader trade policies could slow global economic growth and weaken fuel demand have continued to exert downward pressure on oil prices, undermining the Canadian dollar.
Adding to the loonie’s struggles, Canada’s GDP growth for December is projected at just 0.2%, with annual growth for 2024 expected to be 1.4%, aligning with the Bank of Canada’s outlook. This weak economic performance further dampens the currency’s prospects, as lower demand for Canadian exports weighs on foreign exchange inflows.
U.S. dollar strength builds as Fed outlook shifts
The U.S. dollar has regained traction as the U.S. Treasury yields rebound following expectations that Trump’s policies could push inflation higher, reducing the Federal Reserve’s urgency to cut interest rates. The Fed’s hawkish stance, combined with concerns over the economic fallout from protectionist measures, has bolstered the dollar’s safe-haven appeal.
Meanwhile, the Bank of Canada’s dovish monetary policy stance continues to favor a higher USD/CAD trajectory. The BoC recently ended its quantitative tightening program and has signaled plans to resume asset purchases in March, further limiting the loonie’s upside potential. With the Fed-BoC policy divergence growing, the pair appears poised to sustain its bullish trend in the near term.
Outlook: USD/CAD remains biased to the upside
USD/CAD’s short-term outlook remains bullish, with oil price weakness and monetary policy divergence favoring further gains. The 1.4500 level remains a key psychological barrier, and a sustained break above this mark could push the pair toward 1.4600 and beyond. However, any renewed optimism in Canada’s economic outlook or an unexpected rebound in oil prices could slow the dollar’s momentum.
Previously discussed levels near 1.4380 acted as support, reinforcing the pair’s underlying strength. The ongoing Fed-BoC policy divergence and trade uncertainty remain central drivers, suggesting that USD/CAD’s upward trajectory is likely to persist unless oil markets recover or the BoC signals a shift in tone.
