The Canadian dollar (CAD) extended its decline against the US dollar on Tuesday, with USD/CAD climbing to multi-week highs as a hawkish reassessment of Federal Reserve policy dominated currency markets. Strong US economic data, including resilient employment and sticky inflation, has pushed back expectations for rate cuts, boosting the greenback and weighing on the loonie despite elevated crude oil prices.
Fed policy divergence drives the move. Markets now price in a higher-for-longer scenario for US rates, while the Bank of Canada is expected to ease sooner amid slowing domestic growth. Recent Canadian GDP figures disappointed, and softening retail sales and housing data reinforced the case for a dovish BoC. The widening policy gap has become a fundamental headwind for CAD.
Oil prices, typically a tailwind for the commodity-linked Canadian dollar, provided little relief. While Brent and WTI remain supported by OPEC+ cuts and geopolitical tensions, the US dollar’s strength has overwhelmed the usual correlation. Additionally, global demand concerns—particularly from China—have capped oil’s upside, leaving the loonie without its traditional buffer.
Technically, USD/CAD broke above its 50-day moving average, a bullish signal. Resistance lies at 1.3700 and then 1.3800, while support sits at 1.3600 and the 200-day moving average near 1.3550. Traders now look to upcoming US inflation data and Canadian employment figures for further catalysts.
For businesses and consumers, a weaker CAD makes US imports more expensive, adding to inflationary pressures, while exporters benefit from improved competitiveness. The trend underscores the dominant role of monetary policy expectations in shaping exchange rates.
