Canadian Dollar faces double trouble from Oil slump, US tariffs

USD/CAD trades around 1.3835 on Tuesday at the time of writing, down a modest 0.07% on the day. The pair lacks a clear direction as both the US Dollar (USD) and the Canadian Dollar (CAD) face headwinds. The sharp decline in Oil prices weighs on the Loonie, while improving market sentiment and mixed US economic data limit demand for the Greenback.

West Texas Intermediate (WTI) Oil falls 3.35% on Tuesday to trade around $81.75 at the time of press. Oil prices decline after United States (US) President Donald Trump said that the US Navy had removed or destroyed all mines located in the international waters of the Strait of Hormuz. The announcement eases concerns about risks to energy supplies and helps reduce the geopolitical risk premium embedded in Oil prices.

Lower Oil prices are a negative factor for the Canadian Dollar, as Canada is a major crude exporter. However, this pressure is not enough to push USD/CAD higher, as the US Dollar also weakens amid a more risk-friendly market environment. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, falls 0.05% and trades around 98.95.

At the same time, the latest US economic data provide little support to the US Dollar. The Conference Board Consumer Confidence Index falls to 89.4 in August from a revised 90.2 in July, marking a second consecutive monthly decline. Dana M. Peterson, Chief Economist at The Conference Board, notes that the Expectations Index slips further into negative territory, although consumers' assessment of the present situation improves moderately.

US labor market data, however, show a slight improvement. According to the Automatic Data Processing (ADP) NER Pulse, US private employers added an average of 11.75K jobs per week over the four weeks ending August 8, up from 9.5K previously.

On the Canadian side, trade tensions also return to the spotlight. The Canadian government announces on Tuesday retaliatory tariffs targeting around $20 billion worth of US products. The measures, which are set to take effect on September 8, cover around 700 products and impose tariffs of 15%, 25% or 50%. Ottawa also announces a C$7.5 billion support package for businesses and workers affected by the new US tariffs.

These announcements add another source of uncertainty to Canada's economic outlook, although their immediate impact on the Canadian Dollar remains limited. USD/CAD therefore remains slightly lower on Tuesday, as US Dollar weakness offsets, for now, the negative impact of the sharp Oil price correction on the Loonie.

Trade headlines and softer Oil weigh on the Canadian Dollar but CAD downside seen as contained

Strategists at Scotiabank describe “a bit of a trade whirlwind for the CAD since Friday—tariffs, counter tariffs, more tariffs and (somewhat surprisingly) the concession from VP Vance yesterday that talks are still going on.” They highlight that the policy timeline itself may help temper immediate market stress, noting that “Canada’s tariff response won’t take effect until early September while the US threat of 50% tariffs on all autos, auto parts and steel won’t land until January. There’s a built-in cooling off period in both cases.”

In the near term, Scotiabank points out that “the CAD is marginally lower this morning but that may have as much (or more) to do with lower oil prices as with trade worries or other drivers.” They add that “front-end spreads are little changed on the session and the risk backdrop is positive,” with spot “trading right about where our fair value estimate (1.3842 today) says it should be.” As a result, they judge that, “absent any major deterioration in the trade backdrop in the short run, downside pressure on the CAD may remain contained.”

USD/CAD technical analysis

In the daily chart, USD/CAD trades at 1.3836, keeping a bearish near-term tone as it remains capped below a confluence of resistance levels. Price holds under the downtrend resistance line coming in around 1.3858 and trades beneath both the 200-day and 100-day simple moving averages (SMAs) at roughly 1.3843 and 1.3914, respectively, underscoring a market still governed by overhead supply. The Relative Strength Index (RSI) at about 37 stays below the 50 line, hinting that recovery attempts lack strong momentum for now.

On the topside, initial resistance emerges at the descending trend line near 1.3858, followed closely by the 200-day SMA at 1.3843 and the 100-day SMA around 1.3914, while a stronger barrier looms at the horizontal level of 1.4000. On the downside, immediate support is seen at the horizontal floor around 1.3732, with a deeper cushion at 1.3550, where buyers would be expected to step in should selling pressure intensify.

(The technical analysis of this story was written with the help of an AI tool. Know more.)