The US dollar recovered from earlier lows against the Canadian dollar on Tuesday as oil prices slipped under $90 per barrel, easing support for the oil‑linked loonie and shifting focus back to softening US inflation data and changing interest rate expectations.
usd/cad stabilizes off session low
By 16:26 GMT, USD/CAD was trading around 1.3761 after briefly touching 1.3731, its lowest level since March 24. The US Dollar Index hovered near 98.00, its weakest reading since March 2, signaling broader softness in the greenback.
Daily performance data showed the Canadian dollar up about 0.23% against the US dollar, even as it lost modest ground to other commodity currencies, slipping 0.26% versus the Australian dollar and also easing against the New Zealand dollar.
oil slide weighs on the canadian dollar
Brent crude and West Texas Intermediate extended losses for a second straight session, with WTI dropping more than 4% to roughly $89 per barrel. The pullback in crude undermined support for the Canadian dollar, which is closely tied to energy exports.
Traders linked the oil decline to rising confidence that a two‑week ceasefire between the United States and Iran could be extended or converted into a more durable arrangement, easing near‑term geopolitical risk and reducing the conflict premium in energy prices.
mixed diplomatic signals on us‑iran talks
President Donald Trump said talks with Iranian officials “could be happening over the next two days” in Pakistan, citing outreach via intermediaries in Tehran. His comments followed the US move a day earlier to establish a naval blockade around several Iranian ports, underscoring that tensions remain elevated.
Late Monday, National Security Advisor Jake Sullivan clarified that preliminary discussions are instead set to take place in Geneva, not Pakistan, lending more formal diplomatic weight to potential de‑escalation efforts.
Despite these developments, progress toward a comprehensive deal remains uncertain as disputes over Iran’s nuclear program persist. Ongoing frictions around the Strait of Hormuz continue to limit the downside in oil, preventing a more pronounced drop in energy prices.
cooling inflation pressures reshape rate outlook
The slide in oil is feeding into a broader narrative of easing price pressures that could influence future policy decisions at both the Federal Reserve and the Bank of Canada.
On Tuesday, Chicago Fed President Austan Goolsbee said the outlook for potential 2026 rate cuts would depend on inflation presenting clearer signs of moderation, signaling that policymakers are becoming more data‑dependent as price growth slows.
The latest US Producer Price Index (PPI) report for March underscored that trend. Headline PPI rose 0.5% month‑on‑month, below forecasts of 1.2% and down from a previously reported 0.7%. On a yearly basis, PPI climbed 4.0%, easing from an earlier 3.4% and missing expectations for a 4.6% gain, pointing to softer pipeline price pressures than anticipated.
cpi surprise reinforces case for fed dovish tilt
Fresh data this morning added to the disinflation story. The March Consumer Price Index showed headline inflation slowing to 3.8% year‑on‑year, under the 4.1% consensus forecast and providing the clearest signal yet that price pressures are cooling across the broader economy.
Cleveland Fed President Loretta Mester, typically viewed as one of the more hawkish policymakers, called the back‑to‑back weaker inflation prints “an encouraging development” and said the committee would “certainly incorporate” the new data into its assessment for the June meeting. Her remarks suggested a subtle shift toward a more cautious stance on further tightening.
The combination of softer inflation and reduced geopolitical strain is eroding the US dollar’s safe‑haven appeal, particularly when global conditions appear to be stabilizing and the need for defensive positioning diminishes.
traders reprice fed cuts and rotate into risk
Interest rate derivatives are now signaling a stronger tilt toward easing. Federal funds futures imply a 72% probability of a 25‑basis‑point rate cut by the Federal Reserve in the third quarter, up sharply from 45% just a week ago, according to CME Group data.
That repricing helped power a broad equity rally on Monday. Confirmation of scheduled talks in Geneva and reduced war‑risk premiums in energy markets supported risk appetite, lifting the S&P 500 by 1.1% and pushing the tech‑heavy Nasdaq Composite up 1.5% as capital rotated into growth‑oriented sectors.
market backdrop: geopolitics, commodities, and fx move in tandem
Across currency and commodity markets, traders continued to balance the interplay between geopolitical headlines and evolving rate expectations. Oil’s retreat, softer US price data, and rising odds of Fed cuts are collectively pressuring the US dollar while tempering support for the Canadian dollar through the energy channel.
For the coming weeks, the focus is likely to remain on assets that benefit from a weaker dollar and lower yield expectations, as the immediate risk premium linked to Middle East tensions is steadily repriced and the macro narrative shifts toward disinflation and potential policy easing.
Curious how macro shifts move crypto too? Explore our macro-focused crypto guide in What is fiscal policy and how does it work.
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