Loonie Softens as USD Builds, Oil Limits USD/CAD Upside

Key Moments

USD/CAD Holds Firm as Prior Retreat Loses Steam

The USD/CAD pair is edging higher during the Asian session on Wednesday, pausing the prior day’s retreat from levels near its peak since April 2025, which was reached at the start of this week. Spot prices are trading just above the 1.4200 handle, showing a modest 0.05% gain for the day, as markets digest conflicting drivers.

The US Dollar is attracting some dip-buying interest after a profit-taking move on Tuesday, lending support to USD/CAD. At the same time, a recovery in crude oil prices is lending strength to the commodity-linked Canadian Dollar, helping to restrain the pair’s upside despite the firmer Greenback.

Geopolitics, Oil, and Yield Dynamics Shape Currency Flows

Crude prices are attempting to extend an overnight rebound from a one-month low, driven by concerns about possible supply disruptions in the Middle East. This is providing a backstop for the Loonie and tempering the advance in USD/CAD.

The Saudi-backed Yemeni government claimed it had secured control over key locations along the Red Sea coastline, including areas near the Bab al-Mandeb Strait. In response, the Iran-backed Houthi group carried out attacks on critical sites in Saudi Arabia, including an Aramco refinery in Riyadh. In addition, Iran has increased the pace of its attacks in the Strait of Hormuz over the past week, sustaining a geopolitical risk premium in energy markets.

Alongside these developments, a renewed move higher in US bond yields is bolstering demand for the safe-haven US Dollar. This yield-driven support, combined with differing monetary policy trajectories between the Bank of Canada and the Federal Reserve, is tilting the backdrop in favor of USD/CAD buyers.

The Bank of Canada is seen as having less justification to push interest rates higher than the Fed, given Canada’s softer economic outlook, which may help restrain broader inflation pressures. This relative policy divergence is adding to the appeal of the US Dollar against the Canadian Dollar.

Fed Expectations Focus Attention on Upcoming FOMC Minutes

Market participants are currently assigning roughly an 85% probability that the Federal Reserve will raise borrowing costs by the end of this year. However, US Dollar bulls may be reluctant to extend long positions aggressively ahead of fresh guidance on the policy outlook.

As a result, attention is turning to the release of the FOMC meeting Minutes due later in the day. The document is expected to play a key role in shaping US Dollar price action and may provide fresh direction for the USD/CAD pair.

Technical Picture: Pullback Viewed as Correction Within Bullish Structure

From a technical perspective, the recent downside move is still seen as a corrective phase rather than a trend reversal, especially in light of an overbought daily Relative Strength Index (RSI). The elevated RSI is interpreted as a sign of strong underlying upside momentum instead of a signal for an imminent bearish turn.

USD/CAD continues to trade above all visible Fibonacci retracement levels, reinforcing the constructive near-term outlook. Key technical levels currently in focus are summarized below:

On the downside, initial support is seen at the 23.6% Fibonacci retracement at 1.4163. Any deeper decline is expected to encounter buying interest near the 38.2% retracement at 1.4086 and the 50% retracement at 1.4024. On the topside, the primary resistance is located at the structural anchor at 1.4288. A decisive move above this level would pave the way for new highs in the current bullish cycle.