The USD/CAD pair extended its decline during Asian trading on Friday, falling to the 1.3825 level as fresh selling pressure weighed on the US Dollar (USD). The pair remains close to the two-week low it reached on Wednesday, with broader USD weakness and supportive Canadian fundamentals keeping the Loonie in favor.
Renewed speculation over Federal Reserve rate cuts—fueled by last week’s softer US Consumer Price Index (CPI) and Producer Price Index (PPI)—has undermined the Greenback, despite Thursday’s upbeat US macro data. Adding to the pressure, market concerns have grown over the potential fiscal fallout from former President Donald Trump’s “Big, Beautiful Bill,” which passed the US House of Representatives on Thursday. The bill, projected to significantly widen the US budget deficit, failed to lift the USD despite its pro-growth intent.
Oil Prices and Canadian Inflation Support CAD
Meanwhile, the Canadian Dollar is drawing strength from stabilizing crude oil prices. After a midweek pullback, oil steadied as easing US-Iran tensions helped offset concerns about oversupply stemming from reports of a potential OPEC+ production increase in July. As a major oil exporter, Canada benefits from stronger energy prices, which support its currency.
Further reinforcing the Loonie’s advance are Tuesday’s hotter-than-expected Canadian core inflation readings, which have dampened market expectations for a Bank of Canada (BoC) rate cut at its June policy meeting. The firmer inflation print has reinforced the view that the BoC may need to stay on hold longer, contrasting with the Fed’s perceived dovish tilt.
Technical Picture and Outlook
Technically, the pair broke below the 1.3900 support earlier this week—a key short-term range floor—confirming a bearish bias for the near term. With this breakdown and continued USD weakness, the path of least resistance for USD/CAD appears to be lower.
Traders will be closely watching Canadian Retail Sales and US New Home Sales data due later on Friday for fresh directional cues. However, the broader narrative suggests USD/CAD could remain under pressure if Fed rate cut expectations intensify and oil prices hold firm.
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