The USD/CAD currency pair experienced downward momentum during Thursday's early European trading session, drifting lower to settle near the 1.3790 level. The US Dollar faced selling pressure as market participants scaled back expectations for interest rate increases by the Federal Reserve following softer US inflation and economic data. Additionally, a temporary suspension of new trade duties on Canadian goods announced by US President Donald Trump provided support to the Canadian currency, while firm crude oil prices fueled by ongoing Middle Eastern tensions offered further backing to the commodity-linked Loonie. Live market data places USD/CAD around 1.38, down 0.76% from the previous close of 1.39.
Temporary Three-Day Pause Imposed on Canadian Import Duties
US President Donald Trump announced on Wednesday that the administration will temporarily pause the implementation of new tariffs on a broad selection of Canadian merchandise for three days while trade negotiations continue. This announcement arrived less than two hours before scheduled 50% tariffs on nearly $20 billion worth of Canadian imports were set to take effect.
The temporary reprieve follows direct discussions between Donald Trump and Canadian Prime Minister Mark Carney. Market strategists at BNY noted that while both leaderships indicated an agreement is taking shape, final documentation remains pending. Consequently, while the immediate risk of aggressive trade duties has been deferred, the underlying tariff threat has not been completely eliminated.
Soft Economic Indicators Temper September Fed Rate Hike Odds
Traders have systematically reduced bets on potential Federal Reserve interest rate hikes following a string of subdued economic reports out of the United States. Recent macroeconomic data revealed that US Retail Sales fell in July for the first time in nine months, accompanying unexpected contractions in employment figures and muted inflation readings.
This economic deceleration has placed notable downside pressure on the Greenback. According to the CME FedWatch tool, probability estimates for a Fed rate hike at the upcoming September meeting have declined to 32.7%, down significantly from the 47% odds priced in a month prior. Lower rate expectations continue to weigh on US Dollar yields in the near term.
Crude Oil Surge and Iran Geopolitics Lend Strength to the Loonie
Crude oil prices have maintained an upward trajectory amid escalating conflict between the US and Iran and persistent security concerns around the Strait of Hormuz. Iranian Foreign Minister Abbas Araghchi publicly rejected President Donald Trump's threats of an economic offensive, describing the statements as an attempt to divert attention away from rising US debt and borrowing costs.
Trump had declared intentions to enforce severe economic measures against Tehran and warned of consequences for nations extending financial aid to Iran. Because petroleum represents Canada's primary export commodity, elevated crude oil prices directly bolster foreign demand for the Canadian Dollar and enhance Canada's trade balance trajectory.
USD/CAD Technical Breakdown and Key Live Chart Levels
On the daily chart, USD/CAD maintains a distinct bearish near-term bias, trading below its 100-day simple moving average (SMA) located at 1.3915 and the 20-day Bollinger middle band around 1.3975. Spot prices sit just above the lower Bollinger band floor at 1.3788, while the 14-day Relative Strength Index (RSI) stands oversold at 25.47, with live RSI readings printing at 27. This suggests that while downward momentum remains strong, short-term selling may be getting stretched.
Immediate upside resistance is identified at the 100-day SMA of 1.3915, followed by the 20-day Bollinger middle band near 1.3975 and the upper band cap at 1.4160. On the downside, primary support resides at the lower Bollinger band floor of 1.3788; a decisive breakdown below this boundary could spark deeper technical weakness despite oversold momentum indicators. Live technical readings show MACD at -0.01 in bearish territory, ADX at 33 indicating an active trend, and daily volatility (ATR) at 0.01.
Fundamental Drivers Shaping the Canadian Dollar Valuation
The valuation of the Canadian Dollar depends heavily on monetary policy set by the Bank of Canada (BoC). By establishing benchmark interbank lending rates, the BoC aims to keep consumer price inflation within a target corridor of 1% to 3%. Higher interest rates attract foreign capital inflows, strengthening the currency, whereas policy easing measures generally weigh on CAD demand.
Oil price dynamics represent another critical determinant, given that crude exports drive Canada's trade balance surpluses. Higher crude prices boost national export revenue and increase global demand for the local currency. Furthermore, domestic macroeconomic indicators such as GDP growth, PMIs, labor reports, and consumer sentiment dictate economic health, influencing BoC policy expectations. Given that the US is Canada's primary trade partner, US economic health also directly sways CAD valuation.
Broader Financial Markets: Foreign Exchange, Gold, Crypto, and Bond Buybacks
Across the broader financial landscape, major currency pairs and asset classes showed active rebalancing. GBP/USD consolidated near 1.3600 after pulling back from multi-month highs reached on May 11, while EUR/USD traded below 1.1700 in a bullish consolidation phase following peaks seen in late May. Spot Gold hovered below $4,500 per ounce after modest profit-taking off June highs, backed by soft US Treasury yields.
In cryptocurrency markets, Ripple (XRP) held around $1.0951 after surging 10% in the preceding session, while Solana (SOL) and Cardano (ADA) stabilized. Markets also digested an unexpected announcement from the US Treasury Department detailing plans to double liquidity buyback operations across 10-to-30 year bond maturities from $2 billion up to at least $4 billion per operation between September 9 and November 4.
