USD/CAD currency pair is on the rise, reaching the 1.3900 level as decreasing US-China trade tensions increase demand for the US Dollar while declining crude oil prices drag on the Canadian Dollar. Hopes for better relations between the two economic giants have been fueled by China’s move to exempt some US goods from high tariffs, even as there have been conflicting official reports. Meanwhile, oil prices are falling further as a result of US-Iran nuclear talks making progress and rumors that OPEC+ will further raise output, putting the commodity-correlated CAD under pressure. With the Federal Reserve in blackout mode prior to its next policy decision, market attention continues to be on the geo-political events and energy market fundamentals.
KEY LOOKOUTS
• Any fresh remarks or actions pertaining to the tariff discussions could have implications for sentiment and USD strength.
• Oil weakness, particularly from US-Iran news or OPEC+ actions, could continue to keep the Canadian Dollar under selling pressure.
• The May 7 FOMC meeting will be closely monitored by markets for interest rate and economy direction signals.
Canadian employment or inflation reports coming up could give the CAD guidance in the face of external pressures. USD/CAD are influenced by continuous progress in US-China trade relations, particularly any confirmation or rejection of tariff talks, which would influence investor sentiments and USD demand. Crude oil prices continue to be a key determinant of the Canadian Dollar, with risks to the downside emanating from expected OPEC+ production hikes and Iranian oil returning to world markets. In addition, investors are waiting for the forthcoming Federal Reserve policy meeting on May 7 to look for clues on interest rate direction, with Canadian economic reports like employment and inflation figures contributing to the near-term direction of the pair as well.
Traders will be closely observing US-China trade headlines and crude oil price movements, both the main drivers for USD/CAD. Focus also shifts to the Fed meeting and Canadian economic releases for further guidance.
• USD/CAD approaches 1.3900, posting gains for the second straight session.
• Reducing US-China tensions boost the US Dollar after China temporarily exempts some US goods from tariffs.
• Mixed signals emerge as Chinese officials refute reports of ongoing tariff talks.
• DXY firm, trading close to 99.70, providing support to USD/CAD.
• Fed is in blackout period before the May 7 FOMC meeting.
•Declining oil prices weigh on the Canadian Dollar with US-Iran nuclear developments and OPEC+ output expectations.
• Market attention turns to geopolitical developments, Fed policy cues, and future Canadian economic data.
The USD/CAD currency pair continues to appreciate as market sentiment remains bullish on the US Dollar due to de-escalating tensions between the US and China. Optimism for better trade relations was rekindled following China’s move to exempt specific US imports from its high tariffs, which was seen as an indication of the possibility of thawing their months-long trade confrontation. Despite declarations by Chinese authorities that no talks are in process, the initial step has proved sufficient to give a boost to optimism regarding the prospects of world trade, helping the USD along the way.
USD/CAD Daily Price Chart
Source: TradingView
At the same time, the Canadian Dollar is under pressure due to falling oil prices, which are closely tied to Canada’s economy. Crude prices have declined amid progress in US-Iran nuclear talks, raising the possibility of Iranian oil returning to global markets. Speculation that OPEC+ may increase oil output again has also added to the downward pressure. With the Federal Reserve in a period of silence before its policy meeting and uncertainty still surrounding trade and energy markets, USD/CAD is still sensitive to global news and commodity direction.
TECHNICAL ANALYSIS
USD/CAD is displaying bullish strength as it tests the important resistance level around 1.3900, boosted by two days of consecutive gains. The currency is trading above its short-term moving averages, reflecting strong purchasing interest, while momentum oscillators such as the RSI are still in neutral-to-bullish levels, reflecting scope for further appreciation before hitting overbought levels. A clean breakout above 1.3900 will potentially initiate a move towards the 1.3950–1.4000 range, while initial support is at 1.3800, which will possibly serve as a floor in the event of a correction.
FORECAST
If sentiment surrounding US-China relations remains strong and the US Dollar strengthens, USD/CAD can experience additional upside in the near future. Sustained trading above the 1.3900 level could draw additional bullish energy, with the pair moving towards 1.3950 or even 1.4000. Ongoing weakness in crude oil prices, especially if Iranian supply re-enters the market or OPEC+ increases production, will also continue to weigh on the Canadian Dollar, helping to propel the pair higher.
But there are still downside risks if diplomatic optimism is lost or official comments persist in contradicting previous optimistic headlines and suppressing risk appetite and US Dollar bearishness. And any subsequent rebound in oil prices—on the back of supply disruptions or more robust global demand—may provide support to the Canadian Dollar and drag USD/CAD back down. Breaking through the support level of 1.3800 may initiate a more severe correction to 1.3740 or lower, particularly if future Canadian data surprises higher.
