17 Mar 2025

The USD/CAD currency pair is currently fluctuating within a limited range, positioned near the lower boundary of a short-term trading corridor. The appreciation of oil prices supports the Canadian dollar, while simultaneously restraining spot prices in a context of a weakening US dollar. Increasing expectations that the Federal Reserve will implement multiple rate cuts in 2025 are exerting downward pressure on the dollar.

As the new week begins, the USD/CAD pair starts on a muted note, trading within a narrow range just above the mid-1.4300s, which represents the lower end of a trading range established over the past week during the Asian session. The prevailing market conditions indicate that the most likely direction for spot prices is downward.

In light of the positive developments from last week's US-Canada trade discussions, a significant rise in crude oil prices is bolstering the commodity-sensitive Canadian dollar. Notably, crude oil has reached a two-week high due to concerns over escalating tensions in the Red Sea, particularly following the US commitment to continue military actions against Yemen's Houthis until their assaults cease. This situation, combined with the prevailing bearish sentiment surrounding the US dollar, reinforces the short-term negative outlook for the USD/CAD pair.

The USD Index (DXY), which measures the performance of the US dollar against a selection of currencies, remains close to a multi-month low due to concerns that tariffs imposed by US President Donald Trump, along with retaliatory actions from other nations, could negatively impact the US economy. Additionally, weaker-than-expected inflation data and indications of a slowing labor market in the US may compel the Federal Reserve (Fed) to implement multiple interest rate cuts this year. This situation places USD bulls in a precarious position and is likely to hinder any potential recovery of the USD/CAD pair.

Traders are now anticipating the upcoming US economic reports, which will include the monthly Retail Sales figures and the Empire State Manufacturing Index, for potential market movement later in the North American trading session. Nevertheless, the primary focus will be on the results of the much-anticipated two-day FOMC policy meeting scheduled for Wednesday, which is expected to significantly influence the USD and provide new directional guidance for the USD/CAD pair. In the interim, bearish traders may hold off on making new bets until the price falls below the 1.4350 support level.