The US dollar hovered near its year-to-date low against the Canadian dollar on Monday, with the USD/CAD pair struggling to hold above the 1.3800 level amid continued weakness in the greenback and firm support for the loonie. The currency pair has come under pressure as traders reassess interest rate expectations and commodity market dynamics.
Recent softness in US inflation data and dovish commentary from Federal Reserve officials have weighed on the dollar, prompting markets to lean more heavily toward a potential rate cut later this year. This shift has reduced demand for the greenback, especially against currencies like the Canadian dollar that are backed by strong commodity fundamentals.
Adding to the loonie’s strength, oil prices have remained relatively stable, offering support to Canada’s resource-driven economy. Traders continue to view the Canadian dollar as more resilient in the current environment, particularly with the Bank of Canada maintaining a data-dependent but cautious policy stance.
“The loonie is holding firm on steady oil and a softer US rate outlook,” said one FX strategist. “If the Fed continues to pivot dovish while Canadian data holds up, USD/CAD could remain under pressure in the near term.”
Despite the decline, some analysts warn that the pair could face technical support around the 1.3750 level, which could temporarily slow further downside. However, a sustained break below 1.3800 may leave the US dollar vulnerable to deeper losses if sentiment doesn’t shift.
Looking ahead, markets will watch closely for Canadian GDP figures and upcoming US labor data, both of which could alter the policy narrative and impact direction. For now, USD/CAD remains on the back foot, caught between diverging economic signals and shifting central bank expectations.
