Title: USD/CAD Outlook: Greenback Gains Ground Amid Trade Tensions and Weakened Oil Prices
Originally reported by Yohay Elam at Forex Crunch
The USD/CAD currency pair displayed resilience in recent trading sessions, maintaining an upward trajectory as global investors remained focused on ongoing trade tensions and volatility in commodity markets. The Canadian dollar, often influenced by oil prices due to Canada’s status as a major crude exporter, has shown weakness against the US dollar amid softer energy prices and macroeconomic uncertainties. As we look forward, the balance between central bank policy direction, economic data releases, oil market dynamics, and trade developments set the stage for the next moves in the USD/CAD exchange rate.
This article dissects the myriad factors influencing the pair, with an outlook for the coming weeks into late 2025.
Market Overview
In early trading this week, USD/CAD lingered close to the 1.3500 level, buoyed by safe-haven flows into the US dollar and ebbing commodity prices. Fears of slowing global growth and prolonged trade disputes — particularly between major economies like the US and China — continue to affect market sentiment. For Canada, a nation deeply tied to the global commodities supply chain, this environment has added headwinds for the loonie.
Key highlights influencing the USD/CAD include:
– Declining crude oil prices and broader commodity weakness
– Hawkish bias from the US Federal Reserve vs. more cautious tones from the Bank of Canada
– Elevated levels of trade uncertainty impacting export-sensitive economies like Canada
– Mixed economic data from both the US and Canada
Oil Prices Remain a Crucial Driver
Oil prices play a pivotal role in shaping the Canadian dollar’s performance. Since Canada is the fourth-largest oil exporter globally, its currency often moves in tandem with crude prices. Recently, oil has faced downward pressure due to concerns over global demand contraction, an oversupply in the market, and geopolitical rifts.
Brent crude and West Texas Intermediate (WTI), which serve as global benchmarks, slipped below key psychological thresholds in mid-October 2025, triggering renewed caution. Analysts at Goldman Sachs recently revised their oil price forecast for Q4 2025 downward, citing weakening Chinese demand and higher-than-expected US shale output.
Factors Pressuring Oil Prices:
– Ongoing oversupply from OPEC+ nations despite moderate cuts
– Slow recovery of demand from key consumers such as China and India
– Rising inventories in the US and Europe
– Increasing substitution of traditional fuels with renewables
This oil market weakness has translated directly into Canadian dollar softness, pushing the USD/CAD pair higher. Analysts forecast that if crude continues to trend lower or remains volatile, further upside pressure on USD/CAD is likely.
Developments in Trade Tensions
While trade tensions between the US and China dominate headlines, Canada too finds itself caught in the crosscurrents. The collapse of a prospective trade pact between several Pacific nations has diminished hopes of market expansion, especially for Canadian exporters.
Canada’s trade surplus eroded slightly in recent months, reflecting a loss of momentum in its manufacturing and resources export sectors. Meanwhile, ongoing tariffs and import restrictions, particularly affecting agricultural and energy products, have only added to the uncertainty.
Trade-Related Risks Impacting Canada:
– Slow progress in World Trade Organization reforms diminishing multilateral dispute resolution
– Potential US reimposition of tariffs under security clauses
– China–Canada diplomatic friction following previous detentions and sanctions
– Increased protectionist stances in Europe and North America
Amid these trade developments, investors have sought refuge in the US dollar, traditionally a global safe-haven currency.
Central Bank Policy Divergence
The monetary policy paths of the Bank of Canada (BoC) and the US Federal Reserve continue to diverge, contributing to movements in USD/CAD.
The BoC held its overnight interest rate target at 4.75% in its most recent meeting and delivered a cautiously optimistic tone, citing “modest signs
Read more on USD/CAD trading.