During Thursday's Asian trading session, the USD/CAD pair experienced a slight pullback after touching a three-day high, with overall movement lacking continuity, indicating a market in wait-and-see mode amid conflicting bullish and bearish factors. Although the US dollar had previously strengthened due to safe-haven demand, the Canadian dollar benefited from rising oil prices, which exerted significant downward pressure on the exchange rate.
The core market conflict currently centers on the interplay between geopolitical risks and energy prices. The United States announced an indefinite extension of a ceasefire while maintaining its maritime blockade of certain ports, keeping tensions elevated. Concurrently, conflicts around the Strait of Hormuz continue to develop, with frequent shipping disruptions and security incidents creating uncertainty for global energy supplies. This strait handles approximately 20% of global crude oil shipments, and its stability directly impacts oil prices and overall market sentiment.
Against this backdrop, safe-haven demand provides support for the US dollar, allowing it to maintain gains from the previous two sessions. However, oil prices have risen for a third consecutive trading day, with both WTI and Brent crude maintaining high levels. This is a clear positive for the commodity-linked Canadian dollar, thereby limiting the upside potential for USD/CAD.
Monetary policy expectations are also contributing to exchange rate volatility. Market expectations regarding the Federal Reserve's policy stance have shifted, with increased bets on interest rate cuts within the year weakening the momentum for US dollar bulls. In Canada, markets are beginning to price in potential rate hikes, anticipating that the Bank of Canada may adopt a tighter policy path amid energy-price-driven inflation. This combination of a potentially weaker US dollar and a stronger Canadian dollar is constraining upward momentum for the pair.
From a market structure perspective, USD/CAD has not yet established a clear trend. Although a short-term rebound occurred driven by safe-haven flows, the lack of sustained buying interest indicates weak bullish conviction. At the same time, the support for the Canadian dollar from elevated oil prices appears persistent, suggesting that significant downside for the pair is also limited.
On the data front, investors will focus on US initial jobless claims and preliminary PMI figures. These data points will directly influence market assessments of the US economic outlook and the potential path for monetary policy, thereby affecting the US dollar. Strong data could provide short-term support for the dollar, while weaker data might intensify downward pressure.
From a technical standpoint, the daily chart shows USD/CAD remains within a broader range-bound structure, with no clear directional trend established. Near-term resistance is seen around the 1.3800 level; a break above could lead to a test of 1.3850. Conversely, the 1.3700 area forms a key support level; a sustained break below could open the door for a further decline towards 1.3650. Momentum indicators suggest a lack of trend-driving force, pointing to a consolidation phase. On the 4-hour chart, the pair has entered a sideways pattern following its rebound, with short-term moving averages flattening and MACD momentum weakening, indicating a loss of bullish momentum. Failure to hold above 1.3780 could lead to a further test of support, but as long as the 1.3700 zone holds, the overall consolidation pattern is likely to persist.
In summary, USD/CAD is currently in a phase where multiple factors are offsetting each other. Geopolitical risks support the US dollar, while rising oil prices and policy expectations benefit the Canadian dollar, leading to range-bound trading. Over the medium term, oil price movements and diverging central bank policies are expected to be the dominant variables. Until a clear trend emerges, the market is more likely to maintain its range-bound fluctuations. Investors should closely monitor key technical level breaks and changes in macroeconomic data for clues on future direction.