USD/CAD Holds Near 1.3900 Despite Weak Oil and Mixed Dollar Momentum

USD/CAD Holds Near 1.3900 Despite Weak Oil and Mixed Dollar Momentum

Crude Oil Decline and Safe-Haven USD Flows Offer Mild Support

The USD/CAD pair continues to trend modestly upward on Monday, trading near the 1.3920 mark during the Asian session. The gains are largely driven by declining Crude Oil prices and a soft recovery in the US Dollar (USD), though upside traction remains limited.

Oil prices began the week under pressure after OPEC+ announced a surprise increase in production—boosting output by 548,000 barrels per day (bpd) for August, which reignites oversupply concerns. This weighs on the Canadian Dollar (CAD), a commodity-linked currency, providing indirect support to USD/CAD.

US Dollar Finds Modest Strength on Geopolitical Risk

Meanwhile, the US Dollar is seeing some safe-haven flows after Israel launched airstrikes on Houthi targets in Yemen, breaking a period of calm. This has lifted the DXY slightly, providing a tailwind for the pair.

However, gains in the Greenback remain fragile, constrained by investor concerns over President Donald Trump's new tax cut and spending legislation, which could inflate the US fiscal deficit. Additionally, market bets are growing that the Federal Reserve (Fed) may reinitiate interest rate cuts in the near future.

BoC-Fed Divergence Keeps Traders Cautious

While the Fed's dovish pivot limits aggressive USD gains, expectations that the Bank of Canada (BoC) might refrain from further easing offer support to the CAD. This policy divergence could cap gains in USD/CAD, keeping the pair within a consolidation range unless stronger market catalysts emerge.

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Key Takeaways

• USD/CAD trades near 1.3920, gaining mildly for the second day.
• Oil prices slump after OPEC+ boosts production unexpectedly.
• Safe-haven demand supports USD amid Middle East tensions.
• Trump’s tax bill and Fed cut expectations temper USD upside.
• BoC policy stability could limit upward momentum for USD/CAD.