On Tuesday, the USD/CAD currency graph posted a major rebound. During the Asian session, it found fresh positive traction and climbed back above the 1.3800 psychological mark. The duo has made some positive progress of late. It’s done so without much bullish conviction and is still sub the high it made more than two weeks ago. U.S. economic conditions have a major effect on the value of the Canadian Dollar. Adding to this effect are recent tariff increases and fluctuating crude oil prices.
U.S. President Donald Trump just announced that he would increase his tariffs on Canadian goods from 25% to 35%. This decision put additional downward pressure on the Loonie. Canada’s economy is deeply dependent on petroleum exports. These exports constitute its largest export category. When crude oil prices start to decrease, that leads to a decline of the Canadian Dollar. This trend unintentionally provides a bullish backdrop for the USD/CAD pair as the dollar grows stronger.
Economic Indicators and Market Reactions
The relative health of the U.S. economy is hugely influential on the value of the CAD. At the same time, investors should watch any news and major economic indicators that may dramatically change the market sentiment around both currencies. On Tuesday, dip-buying attracted traders like moths to a flame, allowing the USD/CAD to trade above the 100-day Simple Moving Average (SMA). This action indicates the possibility of recent increases in crude oil spot prices continuing.
If there is any major upside for the U.S. dollar right now, it would be a dream at best. Market participants are betting more on the U.S. Federal Reserve to restart its rate-cutting cycle as soon as September. This change would make the dollar sentiment much less bullish. Consequently, traders continue to be wary of large swings in the USD/CAD pair.
Crude Oil Prices and Their Impact
Crude oil prices continue to be an important underlying driver controlling strength or weakness in the Canadian Dollar. As petroleum is Canada’s biggest export, fluctuations in oil prices tend to have an immediate impact on CAD’s valuation. On Tuesday, crude oil markets were on the defensive as new bearish supply flooded into markets. Yet this slide was exacerbated by the euphoria following the announcement of new three-way Russia-Ukraine-U.S. peace talks opening next month.
These negotiations could relax sanctions on Russian oil. This landmark announcement would prove to be the next twist that greatly darkened the picture for the trajectory of oil prices. Traders are continuing to closely evaluate these advancements. They are going to look at how geopolitical factors may affect international supply chains and patterns of oil pricing, which will ultimately affect how well CAD performs against the U.S. dollar.
Future Outlook for USD/CAD
Looking ahead, market participants will continue to monitor various economic indicators from both countries that could impact the USD/CAD exchange rate. The Federal Reserve is almost certainly going to have to start cutting rates again before long. This potential shift could have big consequences on the demand for the U.S. dollar in the months ahead.
If crude oil prices stabilize or rebound due to successful diplomatic resolutions in Eastern Europe, it may bolster CAD’s standing against USD. If economic conditions deteriorate or tariffs are raised, the Canadian Dollar could be in for a beating. This latter scenario would be supportive of USD/CAD.