Canadian Dollar Remains Under Pressure Near Two‑Week Low Against US Dollar as Oil Prices Slide and FOMC Looms

The USD/CAD pair is consolidating in a bullish range near a two‑week peak reached during Tuesday’s Asian session, hovering around 1.4120. While fundamentals point to further upside, traders remain cautious pending the result of the upcoming two‑day FOMC meeting.

The Federal Reserve is set to announce its policy decision on Wednesday, with markets widely anticipating no change to interest rates. Attention will shift to the accompanying statement and the post‑meeting press conference, where Fed Chair Kevin Warsh’s remarks will be parsed for hints about the future direction of monetary policy. Those cues are likely to influence the US dollar in the short term and could give the USD/CAD pair a noticeable boost.

DBS Group Research notes that “markets remain in flux as investors digest developments from the US‑Iran standoff,” with shifting geopolitical headlines keeping sentiment on edge. From a rates viewpoint, the firm adds that “with the FOMC meeting approaching, investors are hesitant to cut rates just yet, even though oil prices are easing,” indicating a reluctance to meaningfully reprice USD rates before clearer policy signals emerge.

Ahead of the pivotal central bank event, the US Dollar Index (DXY)—which measures the greenback against a basket of peers—remains steady near its monthly high, although a de‑escalation in US‑Iran tensions limits further upside. At the same time, crude oil has slipped to a one‑week low, the Bank of Canada retains a dovish stance, and trade‑war anxieties persist, all of which weigh on the commodity‑linked Canadian dollar. These factors support the view that the USD/CAD pair could continue its rebound from a one‑month trough.

Canadian Dollar FAQs

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.

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