Title: USD/CAD Extends Downtrend Amid Market Volatility and Oil Price Recovery
Original source: Economies.com (Analysis dated August 28, 2025)
Author Credit: Economies.com team
The USD/CAD currency pair has continued its downward correction, registering a steady decline as investor sentiment shifts in favor of the Canadian dollar amid a combination of technical pressure, improving energy market dynamics, and broader macroeconomic trends. At the trading session on August 28, 2025, the pair broke through key support levels, reflecting a stronger loonie and growing bearish sentiment on the U.S. dollar.
In this extended analysis, we will evaluate the key factors contributing to the pair’s decline, the significance of oil price movements, technical chart patterns, policy expectations from the U.S. Federal Reserve and the Bank of Canada, and the likely trajectory for the USD/CAD pair in the coming weeks.
Key Highlights (as per Economies.com Analysis):
– The USD/CAD broke through key support levels and extended its losses from earlier sessions.
– The price has established a clear downward direction, suggesting continued negative momentum.
– The next critical support target lies near 1.3515 as the pair maintains a bearish slope.
– Sustained trading below the resistance level of 1.3625 supports expectations for further declines.
– The moving averages, particularly the 50-day and 100-day, are aligned with the bearish scenario and exert downward pressure.
Let’s analyze each of these observations in greater detail to understand the broader implications for the forex market and for traders involved in USD/CAD positions.
Oil Prices Drive CAD Strength
Canada is a major global exporter of crude oil, and the loonie (CAD) traditionally shows a strong positive correlation with oil prices. Over the past few weeks, a notable rebound in oil prices has bolstered the Canadian currency.
– West Texas Intermediate (WTI) crude futures have risen above $80 per barrel, sustained by tighter global supply and expectations of increased demand from China and other emerging economies.
– The OPEC+ production cuts, especially by Saudi Arabia and Russia, have reduced oil supply in global markets, placing upward pressure on prices.
– Higher oil prices enhance Canadian oil export revenues, boosting the trade balance and supporting the CAD.
For traders, this means:
– As long as oil remains elevated or continues to climb, CAD is likely to remain supported.
– A bearish USD alongside firm oil adds double pressure on the USD/CAD pair.
U.S. Dollar Weakness Adds Fuel to the Decline
The U.S. dollar has faced broader weakness against major currencies amid changing expectations on Federal Reserve policy. While inflation has softened compared to peak levels in 2022-2023, the pace of the Fed’s monetary tightening has subsided in 2025.
– Fed officials now signal a data-driven approach to interest rate hikes.
– Slowing labor market growth and softer consumer spending have reduced the urgency for aggressive tightening.
– Market expectations from CME FedWatch indicate a 50% probability of a rate cut by Q1 2026.
As a result:
– Lower U.S. yields decrease the attractiveness of USD-denominated assets.
– Investors are shifting away from the dollar in favor of higher-yielding or commodity-backed currencies like the CAD.
Bank of Canada Remains Hawkish
In contrast to the Federal Reserve, the Bank of Canada has maintained a comparatively hawkish tone in its recent communications.
– Over the last three months, the BoC has expressed concern regarding inflation persistence, particularly in the housing and services sectors.
– Core CPI remains elevated at around 3.8%, above the bank’s 2% target.
– Governor Tiff Macklem has suggested additional policy tightening may be needed to bring inflation back under control.
This divergence in policy stance:
– Encourages capital flows into Canadian assets.
– Widens the policy gap between the Fed and BoC, which is negative for USD/CAD.
Technical Analysis: Bear
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