Key Moments:
- USD/CAD trades firmly above the mid-1.4200s, hovering near its highest level since April 2025.
- Markets continue to price in more than an 80% probability of a Federal Reserve rate hike by year-end despite weak US NFP data.
- A dovish Bank of Canada stance and softer crude oil prices weigh on the Canadian Dollar and support USD/CAD.
Dollar Strength Persists Despite Soft US Jobs Data
The USD/CAD pair is consolidating above the mid-1.4200s during the Asian session on Monday, trading close to the peak reached last week, which marked the highest level since April 2025. The underlying market backdrop continues to favor US Dollar buyers, reinforcing the prospect of extending the strong uptrend that has unfolded over roughly the past month.
The initial downside reaction to Friday’s weaker-than-expected US Nonfarm Payrolls report faded quickly. Market participants are still assigning more than an 80% likelihood that the Federal Reserve will raise interest rates by the end of this year. That expectation, combined with ongoing geopolitical tensions, is underpinning the Greenback and supporting USD/CAD.
Geopolitical Risks Support Safe-Haven Flows
Persistent geopolitical uncertainty is helping sustain demand for the US Dollar at the start of the week. Tensions linked to the Middle East conflict and the intensifying Russia-Ukraine war are keeping a risk premium in place.
In Yemen, the head of the governing body, Rashad al-Alimi, announced the launch of military operations aimed at recapturing remaining territory controlled by the Houthis. In parallel, Iran’s Foreign Minister Abbas Araghchi stated that there is no military solution to the conflict with the US, while emphasizing that Tehran is still prepared to return to war. Iranian parliament speaker Mohammad Bagher Ghalibaf added that the Strait of Hormuz will not be opened until certain conditions are met.
On the Eastern European front, Ukraine reported lethal Russian air strikes targeting the Kyiv region, Kharkiv, and Dnipro. Ukrainian President Volodymyr Zelenskyy wrote in a post on X that Russia will definitely face a response to this, maintaining elevated geopolitical risk and lending further support to the US Dollar.
Weak Oil and Dovish BoC Pressure the Loonie
A softer tone in crude oil prices is weighing on the commodity-linked Canadian Dollar and providing an additional tailwind for USD/CAD. At the same time, the Canadian Dollar remains pressured by the Bank of Canada’s predominantly dovish policy stance and ongoing US-Canada trade tensions.
These factors point to a bias toward further upside in the currency pair. However, stretched readings on short-term technical indicators could discourage aggressive fresh buying at current levels. Any dips are still likely to attract demand, suggesting that pullbacks may remain shallow and well supported.
Key USD/CAD Technical Levels
Last week’s move above the previous year-to-date highs in the 1.4245-1.4250 band provided a fresh signal for bullish traders and supports the view of a potential push toward the 1.4300 handle.
On the downside, initial support appears near Friday’s swing low around the 1.4200 round figure. A clear break below that area could trigger additional technical selling and open the door for a decline toward the 1.4150-1.4145 region.
| Level | Type | Comment |
|---|---|---|
| 1.4300 | Resistance | Upside target after breakout above year-to-date highs |
| 1.4245-1.4250 | Resistance turned support | Breakout zone from previous year-to-date highs |
| 1.4200 | Support | Friday’s swing low and psychological round figure |
| 1.4150-1.4145 | Support | Next downside area if 1.4200 is decisively breached |
Canadian Dollar: Fundamental Drivers
The Canadian Dollar is influenced by several core factors, including Bank of Canada policy, energy prices, domestic economic performance, inflation dynamics, and trade flows. As Canada’s largest export, oil plays a central role: lower oil prices tend to dampen demand for CAD, while higher prices generally support it.
Interest rates set by the Bank of Canada are another major driver. The central bank targets inflation within a 1-3% band and adjusts policy rates accordingly. Higher rates are typically supportive for CAD, while lower rates or quantitative easing tend to be negative for the currency. Conversely, quantitative tightening is usually supportive.
Inflation readings and broader macroeconomic indicators such as GDP, manufacturing and services PMIs, labor market data, and consumer sentiment help shape expectations for BoC policy. Strong data can attract foreign investment and strengthen the Canadian Dollar, whereas weaker data often has the opposite effect.
Market risk sentiment also matters. In risk-on environments, investors tend to favor higher-yielding and cyclical assets, which is usually CAD-positive. In risk-off periods, the Canadian Dollar can face pressure as investors seek traditional safe-haven assets. Given the tight economic and trade relationship with the United States, the health of the US economy is also a critical input into CAD performance.
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