Insights 
VT 
The USD/CAD pair depreciates towards 1.3650 as the Canadian Dollar gains momentum, supported by rising Oil prices. Canada’s Finance Ministry announced the withdrawal of a proposed digital services tax to advance trade negotiations with the US, boosting the CAD.
Efforts to resume trade talks between Canada and the US, as well as Canada’s role as a top crude exporter, further bolster the Canadian currency. West Texas Intermediate Oil trades around $64.70 per barrel, with prices potentially limited by reduced fears of Middle East supply disruptions.
Usd Struggles And Fed Speculations
The USD/CAD pair’s rise may be constrained by US Dollar struggles as rate cuts are anticipated at the Fed’s September meeting. US data shows unexpected declines, with Personal Spending falling in May and Personal Income dropping 0.4%.
Key US employment figures, including a June payroll report predicting 110,000 new jobs, await release, providing insight into Federal Reserve policy. Canadian Dollar drivers such as interest rates, Oil prices, and US economic health impact CAD value.
Higher Oil prices often enhance CAD value, while inflation and economic data play roles in CAD fluctuations. The Bank of Canada’s interest rate decisions significantly influence the Canadian Dollar’s strength.
We’ve seen a decisive move lower in USD/CAD as the Canadian Dollar benefits from upward pressure in oil markets, with West Texas Intermediate lingering near the mid-$60s. This rally in crude prices, though not explosive, is enough to lend support to the Loonie, particularly as risk sentiment improves and oil inventories remain broadly stable. With Canada being one of the largest energy exporters to the United States, shifts in oil markets tend to ripple directly into CAD pricing.
Impact Of Trade Relations And Us Market Data
The Finance Ministry’s decision to drop the proposed digital services tax is more than just headline material—it removes a sticking point in cross-border trade talks, which had been increasingly fraught. This move should not be underestimated. While it could be seen as a political gesture, the market is reading it as a sign of warming commercial relations, which indirectly boosts investor confidence in the Canadian economy, and thus demand for its currency.
Simultaneously, weakness is beginning to show in US macro indicators. The recent dip in Personal Spending alongside a drop in Personal Income adds weight to growing speculation that the Fed is nearing a rate cut cycle, potentially as early as September. Market-based expectations have started pricing this in more aggressively, pushing US yields lower and putting downward pressure on the US Dollar.
We now await US labour market data, notably the upcoming non-farm payroll release, which is forecast to show a modest increase of 110,000 jobs. In our view, any shortfall there—and particularly any softening in wage data—will accelerate the Fed’s dovish tilt. That in turn could cap any meaningful rallies in this pair and keep USD/CAD skewed to the downside.
On the Canadian side, we need to remain attentive to how the Bank of Canada responds to inflation stickiness and employment conditions. While Governor Macklem has not committed to an explicit path forward, market participants have largely priced out additional tightening. Should the BoC deliver even subtle hawkish hints at its next meeting, CAD could gain further upside.
For us, the takeaway is that oil prices, trade sentiment, and rate divergence between central banks are shaping near-term flows. With Middle East risks easing and US disinflation taking hold, the balance continues to tilt in favour of CAD strength. This is reinforced when we assess positioning data and options flow, which show a modest but clear lean towards Canadian Dollar upside in the medium term.
In this configuration, interest rate differentials become more important. Traders should monitor bond yields, particularly the US-Canada 2-year spread, as this will likely signal direction before the pair reacts. If that spread narrows further, it adds to USD/CAD downside bias. Keep an eye on short-end futures contracts for clues.
Volatility is not spiking materially at this point, but with employment figures and inflation data on both sides due shortly, we may see reactive priceaction. Staying nimble is preferable to committing to one-sided positions over weekend gaps or illiquid hours. In options markets, risk reversals are gradually leaning towards CAD call demand, albeit modestly.
Given the level near 1.3650, watch for technical congestion during any test below that figure. If broken with momentum following weak US data, there’s room to extend down towards early June levels. Until then, fading intraday rallies may offer better reward-to-risk.
