The Canadian dollar gained modestly on Tuesday, lifted mainly by broad weakness in the U.S. dollar rather than its own strength, and still underperforming most major currencies.
Equilibrium estimate and key levels
Scotiabank analysts Shaun Osborne and Juan Manuel Herrera Theoret put the fair-value, or equilibrium, level for USD/CAD at 1.3527. They argue that the pair’s recent undervaluation is correcting primarily through a softer U.S. dollar, not through sustained, independent gains in the Canadian dollar.
Their latest work highlights a market dynamic where the U.S. currency’s retreat is the main engine behind the move lower in USD/CAD. The break below the 1.38 area has reinforced this view, as key technical supports have now given way.
Seasonal and political backdrop
Seasonal patterns for April remain a headwind for USD/CAD. Historically, the U.S. dollar has tended to weaken against the Canadian dollar during this month, and current price action is tracking that tendency.
Political developments, however, are seen as having only limited impact on the short-term direction of the pair. The analysts note that domestic and cross-border politics are not the primary drivers in the current move.
Technical breakdown below 1.38
Technical signals have turned more negative for the U.S. dollar:
- Last week, USD/CAD broke below a trend line drawn from the early March low.
- The pair also slipped under its 200-day moving average.
- In addition, prices fell through the 38.2% Fibonacci retracement of the March advance, located near 1.38.
These breaches open the door to further downside. The next key areas are:
- 50% retracement at 1.3745, where near-term risk is concentrated.
- Upper 1.36s, toward which momentum is currently pointing.
- 61.8% retracement near 1.3690, a level Osborne and Theoret see as reachable if present momentum persists.
Softer U.S. inflation weighs on the dollar
Fresh data from the U.S. Bureau of Labor Statistics added to downward pressure on the greenback. The March headline Consumer Price Index rose 2.8% year-on-year, below the consensus forecast of 3.0%.
The softer inflation print has cooled expectations for further interest rate hikes by the Federal Reserve. In rate futures markets, this shift was immediate:
- CME Group’s FedWatch Tool now shows about a 65% probability of a quarter-point rate cut by the third quarter.
The prospect of earlier and deeper Fed easing relative to previous expectations is undermining the U.S. dollar against its major counterparts, including the Canadian dollar.
Commodities and the Canadian dollar
A renewed surge in commodity prices is amplifying the pressure on the U.S. dollar and supporting the Canadian currency.
West Texas Intermediate crude oil closed above $95 per barrel yesterday for the first time since late 2025. Stronger energy prices typically provide a direct boost to Canada’s terms of trade and growth outlook, strengthening the fundamental backdrop for the Canadian dollar.
This commodity tailwind, combined with a more dovish Fed outlook, reinforces the current direction of travel in USD/CAD.
Trading implications and risk management
For traders managing portfolios sensitive to global risk sentiment, current conditions point toward an extension of recent trends rather than a pause:
- Momentum in currency markets, particularly in pairs linked to commodities, has accelerated.
- Wider intraday and multi-day ranges suggest that protective stop levels may need to be revisited and potentially widened to avoid forced exits on noise.
Strategies built around a near-term rebound in the U.S. dollar face a more challenging environment. By contrast:
- Positions that are short the U.S. dollar versus a basket of other currencies, especially those with strong commodity linkages, remain aligned with both the macro data and prevailing technical signals.
In this context, the Canadian dollar’s relative improvement reflects a combination of U.S. dollar softness, firm commodity prices and a technical backdrop that currently favors further downside in USD/CAD toward the mid- to upper-1.36 area.
Want macro context beyond FX moves? Explore how fiscal policy shapes global currency and crypto markets over time.
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