The USD/CAD currency pair continued its downward trajectory for the third consecutive session on Wednesday, breaking below a short-term trading range and hitting its lowest level in nearly two weeks during Asian trading. The sustained decline, now the fourth in five sessions, saw the pair drop below the key 1.3900 level.
This movement coincides with a sharp uptick in crude oil prices, which surged to their highest level in almost a month. The rally was driven by escalating geopolitical tensions, including reports that Israel is preparing to strike Iranian nuclear facilities—stoking fears of supply disruptions in the Middle East. Additionally, growing doubts over the progress of U.S.-Iran nuclear talks have further buoyed oil prices.
As a commodity-linked currency, the Canadian dollar (CAD) gained strength from the oil rally. Support for the CAD was further reinforced by hotter-than-expected Canadian core inflation data released Tuesday, which dampened expectations of a Bank of Canada (BoC) interest rate cut in June.
Meanwhile, the U.S. dollar remained under pressure, with the U.S. Dollar Index (DXY) falling to a two-week low. Concerns over U.S. fiscal stability and increased market speculation that the Federal Reserve may pursue further rate cuts in 2025 have weighed on the greenback. Adding to the bearish sentiment, Federal Reserve officials expressed caution about the U.S. economic outlook amid lingering policy uncertainty related to the Trump administration. Renewed trade tensions between the U.S. and China also contributed to the dollar’s weakness.
Technical factors have further exacerbated USD/CAD’s decline, with the pair breaking below the lower boundary of a recent consolidation range. Combined with the current macroeconomic backdrop, the outlook suggests a continued bearish bias for the pair, raising the likelihood of further losses.
With no major economic releases scheduled for Wednesday, market attention will turn to upcoming speeches from key Federal Open Market Committee (FOMC) officials for direction on U.S. dollar sentiment. Simultaneously, fluctuations in crude oil prices are expected to influence the movement of the USD/CAD pair throughout the day.
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