USD/CAD lowers amid USD-backed selling, lower oil price could support

• USD/CAD starts the new week on a weaker note amid a bearish US dollar.
• Bets on a 50 basis point Fed rate cut and a positive risk tone are weighing on the greenback.
• Falling oil prices could undercut the Loonie and help limit any further losses.

The USD/CAD pair is struggling to capitalize on its modest gains over the past two days and is attracting fresh sellers during the Asian session on Monday. However, spot prices are managing to hold above the 1.3565 support area, warranting some caution before positioning for any significant pullback from a three-week high hit last Wednesday.

The US dollar (USD) is holding near YTD lows amid growing bets for more aggressive policy easing by the Federal Reserve (Fed), supported by signs of easing inflationary pressures in the US. Apart from this, there is a generally positive tone around the equity markets, which is affecting demand for the safe-haven Greenback and putting some downward pressure on the USD/CAD pair. However, the downside appears to have been mitigated by lower crude oil prices, which tends to undercut the commodity-linked Loonie.

Worse-than-expected Chinese macro data released over the weekend added to worries about slowing fuel demand in the world’s second-largest economy and the world’s biggest oil importer. This, in turn, does not help crude oil prices to capitalize on last week’s recovery from the lowest level since May 2023. In addition, hopes of further interest rate cuts by the Bank of Canada (BoC) could end any movement significant appreciation. for the Canadian dollar (CAD) and support the USD/CAD pair.

Traders may also refrain from placing aggressive bets and prefer to sideline ahead of this week’s key central bank event risk – the outcome of Wednesday’s highly anticipated FOMC meeting. The US central bank is expected to reduce its borrowing costs, although investors remain divided on the size of the interest rate cut. Therefore, the crucial decision, along with the Fed’s policy outlook, will play a key role in influencing USD price dynamics and determining the next stage of a directional move for the USD/CAD pair.