Canadian Dollar Weakens Against Firmer USD As Bears Eye YTD Low Amid Falling Oil Prices

• USD/CAD regains positive traction on Wednesday amid a combination of supporting factors.

• The Iran uncertainty and Fed hike bets benefit the USD, acting as a tailwind for spot prices.

• Bearish Crude Oil prices undermine the Loonie and contribute to the intraday move higher.

The USD/CAD pair attracts fresh buyers following the previous day's modest pullback from the vicinity of mid-1.4200s, or the highest since April 2025, and maintains its bid tone through the first half of the European session on Wednesday. Spot prices currently trade around the 1.4220-1.4225 region as traders await speeches from Bank of Canada (BoC) Governor Tiff Macklem and US Federal Reserve (Fed) Chair Kevin Warsh for some meaningful impetus.

In the meantime, the divergent Fed-BoC policy expectations might continue to act as a tailwind for the USD/CAD pair. Investors expect the BoC to hold rate steady through late 2026 as policymakers are prioritizing a sluggish economy over inflation threats. In contrast, the Fed's latest projection indicates that rates could rise to 3.8% by year-end, signaling a 25-basis-point (bps) rate hike in the coming months. Apart from this, a firmer US Dollar (USD) and bearish Crude Oil prices suggest that the path of least resistance for spot prices is to the upside.

Against the backdrop of a hawkish Fed, uncertainties over US-Iran talks continue to support the USD's safe-haven status. In fact, US negotiators Jared Kushner and Steve Witkoff arrived in Qatar on Tuesday for talks about the implementation of an initial deal to end the Iran war. Tehran, however, has denied any planned meeting with US envoys, clouding the prospects for lasting peace agreement between the two countries. Furthermore, tensions over the Strait of Hormuz revive inflation fears, bolstering Fed rate hike bets and supporting the USD.

Meanwhile, Crude Oil prices have dropped to a fresh low since the start of the US-Iran war in February, which undermines the commodity-linked Loonie and further validates the near-term positive outlook for the USD/CAD pair. Hence, any corrective pullback is more likely to be bought into and remain limited. Traders on Thursday will further take cues from the US economic docket – featuring the ADP report on private-sector employment and the ISM Manufacturing PMI. The focus, however, will remain on the US Nonfarm Payrolls (NFP) report on Thursday.