The USD/CAD currency pair traded marginally lower near 1.4113 during the European session on Tuesday, as the Canadian Dollar (CAD) outperformed its major currency peers in the short term. This temporary strength in the CAD comes despite a notable decline in oil prices, with WTI Oil posting a fresh weekly low, down 2.2% to approximately $79.40. Since Canada is a net energy exporter, falling oil prices typically reduce the appeal of the CAD, suggesting potential further weakness ahead for the currency [1].
The US Dollar (USD) remained flat after a strong performance on Monday, as market participants awaited the Federal Reserve’s monetary policy announcement scheduled for Wednesday. According to the CME FedWatch tool, there is a 62% probability that the Fed will keep interest rates unchanged in the 3.50%-3.75% range [1]. On Monday, US President Donald Trump urged Fed Chairman Kevin Warsh to cut interest rates at the upcoming meeting, citing a recent positive inflation report, rapidly falling costs, and expectations for prices to drop further once the Gulf War concludes [1].
From a technical perspective, USD/CAD is trading near the 20-day exponential moving average (EMA) at 1.4103, indicating a sideways trend. The Relative Strength Index (RSI) stands at 53.7, which is close to neutral, suggesting that while upside momentum has cooled, there is still potential for a gradual move higher as long as the price remains supported by the short-term EMA. Key support for the pair lies between 1.3962 and 1.4001, while a decisive break above the July 14 high at 1.4157 could open the way to revisit the yearly high at 1.4248 [1].
The market is closely watching the upcoming Federal Reserve interest rate decision, as any change or shift in tone could impact the USD and, by extension, the USD/CAD pair. The consensus is for the Fed to maintain rates at 3.75%, with the previous rate also at 3.75% [1].
CONCLUSION
USD/CAD is currently under mild pressure due to lower oil prices and market anticipation of the Federal Reserve's rate decision. While the Canadian Dollar shows short-term strength, the outlook remains cautious given the negative impact of declining oil prices and uncertainty around US monetary policy. Traders are likely to focus on the Fed's announcement for further direction.