The Canadian Dollar (CAD) reached its lowest level since August 5 against the US Dollar (USD) during the Asian session on Tuesday, although the USD/CAD pair did not see sustained buying and remained below the mid-1.4000s mark [1]. This movement comes amid a rebound in crude oil prices from a one-and-a-half-week low, which, together with hawkish remarks from Bank of Canada (BoC) Governor Tiff Macklem, provided some support to the CAD and acted as a headwind for further USD/CAD gains [1].
Governor Macklem, speaking in Nova Scotia, warned that persistently high energy prices could drive inflation higher, forcing the BoC to weigh holding or raising interest rates. He also highlighted the unpredictability of US trade policy, which has increased uncertainty for Canadian businesses and could hinder recent economic progress. Notably, the US imposed 50% tariffs on approximately $20 billion worth of Canadian goods on August 22, prompting Canada to retaliate with tariffs ranging from 15% to 50% on a similar value of US goods on September 8. These developments have fueled trade-war fears and failed to attract meaningful buyers to the CAD [1].
The underlying bullish sentiment for the USD remains strong, supported by the US Federal Reserve's hawkish outlook, which signals at least one more rate hike this year. Escalating tensions in the Middle East have also kept the USD near its highest level since late July. According to HSBC analysts, the USD strengthened following the Fed's decision, with the unanimous vote reinforcing confidence in the Committee’s tightening bias. The updated projections indicate the median 2026 'dot' implies one additional hike before year-end, and a significant minority of participants anticipate a further rate rise in 2027. HSBC describes this policy path as more hawkish than a 'one-and-done' outcome but still below current market pricing, suggesting no major repricing of rate expectations or the USD [1].
Recent declines in crude oil prices have eased inflationary concerns, leading to lower US bond yields and restraining aggressive USD buying. Investors are now awaiting a crucial meeting between US President Donald Trump and Chinese President Xi Jinping on Thursday, as well as developments in the Middle East crisis, which could provide further direction for the USD/CAD pair [1].
Technical analysis shows the USD/CAD pair maintains a bullish near-term bias above the 100-day Simple Moving Average (SMA) at 1.3953 and the mid-range 50.0% Fibonacci retracement at 1.3992, with spot prices pressing into overhead Fibonacci resistance [1].
CONCLUSION
The Canadian Dollar remains under pressure due to trade tensions and hawkish central bank signals, while the US Dollar is supported by a bullish outlook from the Federal Reserve. Market participants are closely watching upcoming geopolitical events and technical levels for further direction. The overall sentiment is cautious, with medium market impact expected as traders await new catalysts.