USD/CAD slipped to about 1.4113 in European trading on Tuesday, even as falling oil prices kept pressure on the Canadian Dollar’s broader outlook. WTI hit a fresh weekly low, down 2.2% to around $79.40, a move that typically undermines currencies tied to net energy exporters such as Canada. The pair nonetheless edged lower on the session as CAD briefly outperformed other major peers, while markets monitored US-Iran talks aimed at restoring adherence to a peace agreement after recent breaches.
The US Dollar was broadly steady after Monday’s gains, with attention turning to the Federal Reserve’s decision on Wednesday. CME FedWatch showed a 62% probability that rates will be left unchanged within the 3.50%–3.75% range. Technically, USD/CAD hovered near its 20-day EMA at 1.4103 as the RSI eased to 53.7; support is seen in the 1.3962–1.4001 zone, while resistance sits at 1.4157 and then 1.4248.
Volatile Outlook for USD/CAD Amid Conflicting Forces
We should prepare for a volatile ride in USD/CAD over the coming weeks as conflicting forces battle for control. While the Canadian Dollar has shown some temporary resilience, dropping the pair to around 1.4113, falling West Texas Intermediate (WTI) crude prices down to $79.40 present a major headwind for the loonie. Historically, the Canadian Dollar shares a strong negative correlation of around -0.75 with oil prices, meaning further energy declines will likely drag the CAD down.
Strategy Implications and Technical Levels
We suggest derivative traders look at long call options on USD/CAD to capitalize on this fundamental divergence. The upcoming Federal Reserve meeting is a critical pivot point, with the market pricing in a 62% probability that rates will hold steady at 3.50% to 3.75%. If the Fed resists political pressure to cut rates, the yield advantage will favor the greenback and push this pair much higher.
From a technical perspective, we recommend setting stop-losses or buying protective puts just below the key demand zone of 1.3962 to 1.4001. The relative strength index sitting at 53.7 indicates that the upward momentum is merely resting rather than reversing. If we see a clean break above the July 14 resistance level of 1.4157, it will open the door for a fast move toward the yearly high of 1.4248.
