The Canadian Dollar (CAD) softened against the US Dollar (USD), with the USD/CAD pair recovering some lost ground near 1.3595 during early European trading hours on Monday [1]. This weakening of the CAD is attributed to a retreat in crude oil prices, which followed US President Donald Trump's announcement of Project Freedom, an initiative aimed at escorting ships crossing the Strait of Hormuz [1]. As Canada is a major oil-exporting country, lower crude oil prices generally have a negative impact on the CAD [1].
Additionally, President Trump indicated that the US is engaged in 'very positive discussions' with Iran that could potentially lead to a deal, though uncertainty remains high due to the continued heavy US military presence in the region [1].
On the monetary policy front, the US Federal Reserve (Fed) kept interest rates unchanged in a range between 3.50% and 3.75% last week, with an 8–4 vote—the most divided decision since 1992. Three officials dissented, expressing concerns about the Fed's communication of a bias towards easing [1]. Fed Chair Jerome Powell warned that near-term inflation expectations are rising and stated his intention to remain on the Board of Governors for an indefinite period, even after his chairmanship ends [1]. The Fed's hawkish stance and reluctance to signal rate cuts could support the USD against the CAD [1].
Looking ahead, both US and Canadian employment data for April are expected to be key highlights later in the week, which could further influence the USD/CAD pair [1].
CONCLUSION
The Canadian Dollar is under pressure due to falling crude oil prices and a hawkish US Federal Reserve, which has chosen to keep interest rates on hold amid rising inflation concerns. Upcoming employment data from both the US and Canada may provide further direction for the USD/CAD exchange rate.