Falling oil prices drag down the Canadian dollar; a medium-term correction in USD/CAD may be underway.

Tonghui Finance App News—— The U.S. dollar to the Canadian dollar continues to decline during the Asian session on Wednesday. The exchange rate fell to around 1.3835, mainly driven by a weaker U.S. dollar. Earlier, signs of easing in the Middle East situation emerged. The United States announced that it would pause military action against Iran for two weeks. As a result, market risk-aversion sentiment cooled noticeably, reducing demand for the U.S. dollar as a safe-haven asset.

Foreign exchange market analysts said, “As geopolitical risks ease, the safe-haven premium of the U.S. dollar is being unwound, and in the short term the trend has turned relatively weak.”

From the developments in the event, Iran has accepted the two-week ceasefire arrangement and plans to hold negotiations in Pakistan. It also stated that, in coordination, it will restore the passage of key shipping lanes. This statement eases market concerns about disruptions to energy supplies. The Strait of Hormuz handles about 20% of the world’s seaborne energy transportation, and expectations for its recovery directly affect global asset prices.

Against this backdrop, crude oil prices have fallen sharply, breaking below the 100-dollar level. This change has put clear pressure on the Canadian dollar. As a major resource-based currency, the Canadian dollar’s performance is highly correlated with crude oil prices. When oil prices fall, it usually means lower expectations for export revenues, which in turn weakens the Canadian dollar’s performance.

Some institutions noted, “A pullback in oil prices weakens the fundamental support for the Canadian dollar, limiting the downside room for the U.S. dollar to the Canadian dollar.”

Meanwhile, market attention is gradually shifting to the Federal Reserve meeting minutes that are soon to be released. The minutes will provide important clues about the policy path, and especially amid fluctuations in energy prices, the market wants to understand how policymakers assess inflation and the economic outlook. If the minutes release a hawkish signal, they may support the U.S. dollar in the short term, thereby capping further declines in the exchange rate.

In terms of market sentiment, the current exchange rate trend shows a typical “two-factor drive.” On one hand, the U.S. dollar is weakening as safe-haven demand declines. On the other hand, the Canadian dollar is under pressure due to the fall in oil prices. This hedging relationship makes the exchange rate overall trade with a choppy but weaker tone, rather than a one-way trend.

From a technical perspective, the daily chart shows that after the U.S. dollar to the Canadian dollar pulled back from its highs, it entered a choppy downward channel. It has now moved close to a key support area. 1.3800 is an important support level. If it is broken convincingly, the price could further test the 1.3700 region. The main resistance overhead is concentrated around 1.3950—a level that serves as near-term rebound pressure. In terms of momentum, the bears are in control but with limited strength. Observing the 4-hour cycle, the exchange rate shows a choppy downward structure. If the rebound cannot break above 1.3950, the short-term outlook remains relatively weak; however, if oil prices continue to weaken, the Canadian dollar will remain under pressure, and the exchange rate may experience a technical rebound.

Overall, the U.S. dollar to the Canadian dollar is currently in a tug-of-war driven by multiple factors. Short-term volatility may increase, and the direction will still need confirmation from new fundamental signals.

Editor’s Summary

The core of this round of the U.S. dollar to the Canadian dollar pullback is the weaker dollar brought by easing geopolitical conditions. However, the sharp fall in oil prices drags on the Canadian dollar, limiting the exchange rate’s downside room. In the short term, the exchange rate will continue to be influenced by both the U.S. dollar and crude oil, showing a choppy pattern. Going forward, two points will be key: first, whether stability in the Middle East can be sustained; and second, whether oil prices can stabilize and rebound. At the same time, Fed policy signals will also become an important variable. Overall, in the short term the bias is choppy, while the medium-term direction still needs the macro environment to become clearer.

(Responsible editor: Wang Zhiqiang HF013)

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