USD/CAD Extends Gains as Oil Weakness & Tariffs Weigh

Key Moments

Fundamental Overview: Loonie Under Pressure

The USD/CAD pair begins the new week with renewed buying interest, halting a modest decline seen on Friday from levels above the 1.4000 psychological barrier, which marked the strongest reading since August 7. The broader backdrop continues to favor an extension of the nearly two-week-long advance in the pair.

Crude oil prices have dropped to their lowest levels in more than a week as increased shipments from Saudi Arabia ease prior worries about supply constraints. This decline in oil, a key export for Canada, is weighing on the Canadian Dollar (CAD) and helping support USD/CAD.

At the same time, the interest rate spread between the United States and Canada has widened. Earlier this month, the Bank of Canada (BoC) left its key policy rate unchanged at 2.25%, while the US Federal Reserve (Fed) raised rates last Wednesday for the first time in over three years. This divergence in policy is contributing to the CAD’s underperformance relative to the US Dollar (USD).

Trade Tensions and Geopolitics Bolster USD

Trade frictions between the two countries are adding another headwind for the Canadian currency. On August 22, the United States imposed tariffs of 50% on approximately $20 billion of Canadian exports. Canada responded on September 8 with retaliatory measures, introducing tariffs from 15% to 50% on around $20 billion of US products.

Beyond trade, the USD remains underpinned by a generally bullish tone driven by the Fed’s hawkish messaging and heightened geopolitical uncertainty. The Fed’s so-called dot plot indicated that policymakers anticipate at least one additional rate increase this year, reinforcing expectations for tighter US monetary policy.

Geopolitical risks in the Middle East are also in focus. Iran has outlined seven conditions to resume talks with the United States. In addition, Iran-backed Houthis in Yemen stated that they targeted sensitive locations in Riyadh, the capital of Saudi Arabia, on Saturday using missiles and drones. These developments sustain a geopolitical risk premium in markets and are seen as supportive for the USD, suggesting that USD/CAD’s prevailing directional bias remains tilted higher.

Technical Picture: Trend Favours USD Strength

From a technical standpoint, USD/CAD continues to display a bullish near-term profile while trading above the 100-day Exponential Moving Average (EMA) at 1.3924 and the 38.2% Fibonacci retracement at 1.3932. The pair has also moved back above the 50% retracement at 1.3992, signaling that buyers still have the upper hand.

The next upside level of note is the 61.8% Fibonacci retracement, located near 1.4052. Above that, a more substantial resistance zone is seen at the 78.6% retracement around 1.4137, followed by the swing high at 1.4246.

On the downside, the 50% retracement at 1.3992 acts as the first notable support, followed by the 38.2% retracement at 1.3932 and the 100-day EMA at 1.3924. A sustained move below these levels would bring the 23.6% retracement at 1.3858 into focus, ahead of a more important structural base around 1.3738.