- USD/CAD faces some challenges as the Canadian dollar benefits from rising crude oil prices.
- Oil prices increased following improved market sentiment after the Trump administration delayed tariff implementations in China.
- The Canadian dollar could feel pressure as expectations for Bank of Canada rate changes strengthen, particularly after recent disappointing employment figures.
The USD/CAD pair has been relatively quiet after seeing gains for three consecutive days, trading around 1.3780 during early Asian hours on Tuesday. This calmness might be tested as commodity-linked Canadian dollars gain from rising oil prices. It’s worth mentioning, Canada is a major oil supplier to the United States.
West Texas Intermediate (WTI) oil prices have continued to rise for the second day, hovering around $63.50 per barrel as of now. The surge in crude oil prices seems to stem from a more positive market outlook after President Trump announced late Monday that tariff implementations in China would be postponed for 90 days. This announcement came on the brink of a deadline for an existing agreement between the world’s two largest economies. In a similar vein, China’s Commerce Department then declared it would hold off on additional tariffs on U.S. goods, coinciding with Trump’s tariff stay.
However, the Canadian dollar may not be entirely secure as uncertainty remains surrounding the Bank of Canada’s (BOC) interest rate policies. Additionally, Trump’s imposition of a 35% tariff on Canadian aluminum, alongside potential duties affecting Canadian automobile exports, adds pressure to the trade environment.
The USD/CAD pair has shown little movement as traders await U.S. consumer inflation data that’s due later in the North American session. The consumer price index (CPI) for July rose by 0.2%, a slight dip from June’s 0.3%. Nonetheless, the year-on-year rate is expected to increase to 2.8% for the third month in a row, with core CPI anticipated to rise to 0.3%.
Market speculation leans towards two potential interest rate cuts from the U.S. Federal Reserve, especially as recent data on employment and the manufacturing index pointed to weaknesses. Current market estimates suggest there’s about an 84% chance of a rate cut in September, according to the CME FedWatch tool.
