USD/CAD Climbs as Oil Retreats, Canadian Dollar Faces Headwinds

Technical Picture Suggests Limited USD Upside for Now

The USD/CAD pair has extended gains this week, grinding higher from last week’s lows in the 1.37 range. Current technical resistance sits at 1.3815, though a break above the low 1.38s could unlock additional buying towards the upper 1.38 zone. On the downside, support levels are anchored at 1.3765/70 and 1.3725/30. Notably, while USD strength persists, chartists observe persistent selling interest emerging around 1.38 and above, suggesting the rally may face headwinds against stronger resistance.

Fair Value Assessment Edges Higher Amid Shifting Dynamics

FX strategists have revised their fair value estimate for USD/CAD to 1.3622, up from last week’s close just below parity. This modest upward adjustment reflects a more nuanced picture—while the broader downtrend in USD/CAD spreads remains intact, short-term sentiment has shifted somewhat against the Canadian currency. The widening of US/Canada rate spreads from recent lows represents a key factor supporting the US dollar, though the longer-term narrowing trajectory hasn’t been reversed.

Oil Weakness and Policy Uncertainty Weight on CAD

Crude prices have softened amid speculation that OPEC+ could increase production, removing a traditional support pillar for the Canadian dollar. Alongside energy weakness, equity market volatility presents another near-term risk. Importantly, traders are watching for a stronger-than-expected Non-Farm Payroll print this Friday—should employment data surprise to the upside, it would diminish expectations for a Federal Reserve rate cut later this month, potentially bolstering USD demand. Conversely, current market positioning suggests the recent USD gains may prove temporary, with risks ultimately favoring near-term Fed easing rather than sustained dollar strength.

What to Watch

The outlook hinges on upcoming US employment data and clearer signals on the Fed’s policy trajectory. CAD traders should also monitor crude price action and equity volatility, which continue to influence capital flows. While near-term technical strength supports the USD, the underlying fundamentals suggest this rally could be vulnerable to reversal once rate cut expectations reset.