The USD/CAD pair is struggling to gain momentum, hovering just below 1.4350 in Monday’s trading. While Federal Reserve (Fed) rate cut expectations have put some pressure on the U.S. dollar (USD), concerns over Canada’s political uncertainty and weaker crude oil prices are preventing any meaningful gains for the Canadian dollar (CAD).
Market participants remain cautious as they assess the impact of Canada’s snap election and shifting economic policies in both nations. The release of flash U.S. Purchasing Managers’ Index (PMI) data later today will be a key event influencing the pair’s next move.
Fed Rate Cut Bets Limit USD Gains
Despite the Fed’s upward revision of its inflation projection, investors believe that a slowing U.S. economy, exacerbated by new tariffs set to take effect on April 2, could push the central bank toward resuming rate cuts.
- Fed rate cut probability: Markets are pricing in at least two rate cuts by the end of 2025.
- USD performance: Weighed down by softer economic outlook and global trade uncertainty.
- Risk sentiment: Positive global market tone fails to strengthen USD demand.
This uncertainty has capped USD upside, keeping USD/CAD in a tight range despite a three-day rebound from multi-month lows.
Oil Weakens as Canada Faces Political Uncertainty
Oil prices, a key driver for the Canadian dollar, retreated from a three-week high touched last Friday. Several factors are weighing on crude:
- U.S. tariff concerns: Potential trade disruptions could slow global demand.
- Russia-Ukraine negotiations: Hopes for de-escalation reduce risk premiums.
- Weaker global demand: Energy traders remain cautious amid economic slowdown fears.
Additionally, Canada’s new Prime Minister, Mark Carney, has called for a snap election on April 28, adding further uncertainty to the CAD outlook. Investors are hesitant to take strong positions on the loonie until more clarity emerges on Canada’s future policy direction.
Will USD/CAD Break Higher?
While the USD/CAD pair lacks strong momentum, the bias remains tilted to the upside, with 1.4400 acting as a key resistance level. For a bullish breakout,traders will be watching:
- U.S. PMI data – A weaker reading could reinforce Fed rate cut expectations.
- Oil price trends – Further declines could push USD/CAD higher.
- Canadian election developments – Political uncertainty may keep CAD under pressure.
Without a decisive catalyst, USD/CAD is likely to trade within its current range. However, a sustained move above 1.4400 could open the door for further gains, while support at 1.4325 will be closely watched for potential downside breaks.
