USDCAD maintains a consistent negative correlation with oil price movements, and this factor remains a key driver of the pair’s dynamics. Since Canada is one of the world's leading crude exporters, rising energy costs increase capital inflows into the country and underpin its currency. In other circumstances, cheaper fuel typically makes the loonie weaker, playing in favor of USDCAD. In the current environment, a drop in oil prices below $100 per barrel could trigger an upward move in the pair.
Monetary divergence is another factor to consider. The Federal Reserve (Fed) kept interest rates at 3.75%, while the Bank of Canada (BoC) held them at 2.25%. The 150-basis-point gap increases the appeal of dollar-denominated assets for carry trades, giving an extra hand to the greenback.
Thus, elevated crude prices serve as a key pillar of support for the loonie, capping USDCAD’s upside. The rate differential is on the side of the American dollar. However, keep in mind that cheaper fuel would turn against the Canadian currency, leaving it under pressure from the two factors simultaneously and sending USDCAD higher.
From a technical perspective, the next upside target is the 1.38000 resistance level.
The ultimate recommendation is to buy USDCAD at the current price, aiming for 1.38000 within a month. To mitigate the risk of adverse market movements, place a Stop Loss order slightly below support, namely at 1.35500.
This content is for informational purposes only and is not intended to be investing advice.
