Oil price rebound supports Canadian dollar, while BOC rate cut expectations and tariff pressure limit USD/CAD gains
2025-08-12 14:33:47
USD/CAD was stable in Asian trading on Tuesday, consolidating around 1.3780 after three consecutive days of gains. As a commodity-linked currency, the Canadian dollar benefited from the rebound in international oil prices. Canada is the largest supplier of crude oil to the United States, so fluctuations in oil prices have a significant impact on the Canadian dollar.
In the crude oil market, WTI crude oil prices rose for the second consecutive day, mainly due to improved market sentiment. The US President announced on Monday night that the implementation of tariffs on major Asian countries would be postponed for 90 days, avoiding escalating trade concerns after the expiration of the previous agreement.
However, the Canadian dollar is still under pressure from expectations of a Bank of Canada (BoC) rate cut. Recent weak Canadian employment data has reinforced market expectations of a rate cut this year.
At the same time, the United States has decided to impose a 35% tariff on Canadian aluminum and is considering imposing additional tariffs on auto parts, which will have an impact on Canadian manufacturing exports and weaken the economic outlook.
On the Federal Reserve side, traders increased their bets on a September rate cut after recent weak U.S. employment and PMI data. The market currently puts the probability of a September rate cut at 84%, down from 90% a week ago.
The upcoming July CPI data (monthly rate expected to be 0.2%, annual rate expected to be 2.8%, core CPI expected to be 0.3%) will be the key to judging the Fed’s subsequent policies.
Judging from the daily chart of the U.S. dollar against the Canadian dollar (USD/CAD), the exchange rate encountered obvious resistance near 1.3780 after rising for three consecutive days, and showed a high consolidation pattern in the short term.
From a technical perspective, the price is trading above the 20-day and 50-day moving averages, indicating that bulls still have a certain advantage. However, the shortening of the MACD red column and the RSI hovering near the overbought area suggest that the upward momentum has weakened.
If the price fails to effectively break through the 1.3800 integer mark, it may retrace to test the support range of 1.3720 to 1.3680; on the contrary, if it breaks through with large volume, it is expected to challenge 1.3850 or even 1.3900.
Editor's opinion:
USD/CAD is likely to remain volatile in the short term, with rebounding oil prices providing support for the Canadian dollar. However, expectations of a BoC rate cut and the threat of US tariffs are exerting downward pressure. If US CPI data falls short of expectations, the probability of a Fed rate cut increases, the US dollar could weaken, pushing USD/CAD back towards 1.3700. Conversely, strong inflation data could re-test the resistance at 1.3800.
In the crude oil market, WTI crude oil prices rose for the second consecutive day, mainly due to improved market sentiment. The US President announced on Monday night that the implementation of tariffs on major Asian countries would be postponed for 90 days, avoiding escalating trade concerns after the expiration of the previous agreement.
However, the Canadian dollar is still under pressure from expectations of a Bank of Canada (BoC) rate cut. Recent weak Canadian employment data has reinforced market expectations of a rate cut this year.
At the same time, the United States has decided to impose a 35% tariff on Canadian aluminum and is considering imposing additional tariffs on auto parts, which will have an impact on Canadian manufacturing exports and weaken the economic outlook.
On the Federal Reserve side, traders increased their bets on a September rate cut after recent weak U.S. employment and PMI data. The market currently puts the probability of a September rate cut at 84%, down from 90% a week ago.
The upcoming July CPI data (monthly rate expected to be 0.2%, annual rate expected to be 2.8%, core CPI expected to be 0.3%) will be the key to judging the Fed’s subsequent policies.
Judging from the daily chart of the U.S. dollar against the Canadian dollar (USD/CAD), the exchange rate encountered obvious resistance near 1.3780 after rising for three consecutive days, and showed a high consolidation pattern in the short term.
From a technical perspective, the price is trading above the 20-day and 50-day moving averages, indicating that bulls still have a certain advantage. However, the shortening of the MACD red column and the RSI hovering near the overbought area suggest that the upward momentum has weakened.
If the price fails to effectively break through the 1.3800 integer mark, it may retrace to test the support range of 1.3720 to 1.3680; on the contrary, if it breaks through with large volume, it is expected to challenge 1.3850 or even 1.3900.
Editor's opinion:
USD/CAD is likely to remain volatile in the short term, with rebounding oil prices providing support for the Canadian dollar. However, expectations of a BoC rate cut and the threat of US tariffs are exerting downward pressure. If US CPI data falls short of expectations, the probability of a Fed rate cut increases, the US dollar could weaken, pushing USD/CAD back towards 1.3700. Conversely, strong inflation data could re-test the resistance at 1.3800.
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