The USD\/CAD pair has shown depreciation for a second consecutive session, hovering around 1.3660, close to the five-month low of 1.3642. This decline is influenced by the rise in Oil prices, with the Canadian Dollar benefiting from Canada’s role as the largest crude exporter to the US.<\/p>\n
Oil prices see a recovery, with West Texas Intermediate trading at approximately $57.20, as tensions in the Middle East escalate due to Saudi airstrikes in Yemen and Iran’s aggressive stance against the US, Europe, and Israel. The potential disruption in oil supply is contributing to the increase in crude prices.<\/p>\n
The US Dollar is weakening, partly due to the anticipation of further rate cuts by the Federal Reserve in 2026, with traders looking forward to the FOMC December Meeting Minutes for insights. The Federal Reserve recently reduced interest rates by 25 basis points, leading to a cumulative 75 bps cut in 2025.<\/p>\n
The CME FedWatch tool indicates an 81.7% probability of interest rates being maintained at the Fed’s January meeting. Meanwhile, the likelihood of a 25-basis-point rate cut has decreased to 18.3%.<\/p>\n
The Canadian Dollar is affected by various factors, including the Bank of Canada\u2019s interest rates, oil prices, economic health, and inflation. Market sentiment and the health of the US economy also play roles in influencing the CAD.<\/p>\n
As we approach the end of 2025, we are seeing the USD\/CAD pair test significant lows not seen in five months. The primary drivers are clear: rising oil prices are boosting the Canadian dollar, while expectations of a more dovish Federal Reserve are weighing on the US dollar. This downward pressure on the currency pair presents specific opportunities and risks for the coming weeks.<\/p>\n
The strength in crude oil is a key factor, with West Texas Intermediate trading around $57 a barrel amid escalating geopolitical tensions in the Middle East. Recent data from the U.S. Energy Information Administration (EIA) has shown consistent draws on crude inventories over the past month, further supporting prices. Given Canada\u2019s position as a top energy exporter, these higher oil prices create a fundamental tailwind for the Canadian dollar, suggesting that any trade looking for a stronger USD against the CAD faces an uphill battle.<\/p>\n
On the other side of the pair, the US dollar is softening based on the Federal Reserve’s actions throughout 2025. We have already seen the Fed deliver 75 basis points in rate cuts this year, a response to a cooling US labor market where November’s non-farm payrolls report showed job growth slowing significantly. With the market pricing in the possibility of two more cuts in 2026, the path of least resistance for the greenback appears to be lower. <\/p>\n
For derivative traders, this environment favors strategies that profit from a continued decline in USD\/CAD. Buying put options on the pair could provide leveraged exposure to the downside, with a key target being a decisive break below the 1.3642 support level. Selling out-of-the-money call spreads would be a more conservative approach, designed to profit if the pair stays below a certain resistance level while generating income from the premium.<\/p>\n
However, we must watch for potential reversals heading into January 2026. The Federal Open Market Committee meeting minutes, due this Tuesday, could reveal a more divided or cautious stance than the market currently anticipates, which would strengthen the US dollar. Furthermore, any de-escalation of conflict in the Middle East could quickly unwind the recent rally in oil prices, removing a major pillar of support for the Canadian dollar.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" USD\/CAD weakens amid rising oil prices, Fed rate cut expectations, and escalating Middle East tensions.<\/p>\n","protected":false},"author":62,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-37782","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/37782","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/comments?post=37782"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/37782\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media?parent=37782"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/categories?post=37782"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/tags?post=37782"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}