The Canadian Dollar (CAD) continues to trade near recent lows, with USD/CAD hovering around 1.3990 on Tuesday as investors maintain a cautious stance ahead of the Federal Reserve’s monetary policy decision [1]. The pair exhibits a bullish bias, largely due to persistent weakness in the CAD, which is being pressured by declining Oil prices and uncertainty surrounding the Fed's future policy direction [1].
Oil prices have come under pressure following diplomatic progress between Washington and Tehran, with a memorandum of understanding scheduled to be signed on Friday in Bürgenstock, Switzerland, according to the Swiss Foreign Ministry [1]. This development has raised expectations for smoother global energy flows, contributing to the recent decline in Crude Oil prices. Lower Oil prices negatively impact the Canadian Dollar, given its close ties to Canada’s energy exports, and this dynamic has extended the recent pressure on the Loonie [1].
On the US side, the Dollar remains broadly stable ahead of the Fed meeting, with investors widely expecting policymakers to leave interest rates unchanged. However, market participants are closely watching the Summary of Economic Projections and the updated dot plot for signs of a more hawkish stance, especially in light of recent rises in energy prices and higher inflation [1]. The latest US economic data indicate moderation in the labor market, as the four-week average of the ADP Employment Change report showed private companies added 25.5K jobs, down from 29K previously, suggesting a gradual slowdown in hiring [1].
US inflation has been impacted by earlier surges in energy costs, with the Consumer Price Index (CPI) rising to 4.2% year-over-year in May, the highest since April 2023 [1]. However, improving US-Iran relations have recently helped push Oil prices lower, which could ease inflationary pressures over the medium term [1]. The combination of a resilient US Dollar and a Canadian Dollar weighed down by lower Oil prices is keeping USD/CAD near its recent highs, with investors awaiting the Fed’s updated economic projections for further guidance [1].
Today, the Canadian Dollar was the strongest against the Japanese Yen, but showed a -0.03% change against the US Dollar [1].
CONCLUSION
The Canadian Dollar remains under pressure due to declining Oil prices and uncertainty ahead of the Federal Reserve's policy decision, keeping USD/CAD near recent highs. Investors are closely watching upcoming Fed projections for further direction, while improving US-Iran relations may help ease inflationary pressures. Overall, the market is cautious, with medium impact expected as traders await new guidance.