• USD/CAD fills a modest bullish gap as softer US bond yields keep the USD on the back foot.
• The divergent Fed-BoC stance and Friday’s dismal Canadian jobs data cap gains for the CAD.
• Sliding crude oil prices further undermine the Loonie as geopolitical risks support the USD.

The USD/CAD pair struggles to capitalize on a modest gap-up open at the start of a new week, retreating back to mid-1.4200s during the Asian session. However, a combination of diverging forces warrants some caution before positioning for an extension of Friday’s pullback from the 1.4300 neighborhood, or its highest level since April 2025.

The recent minor pullback in US Treasury bond yields keeps USD bulls on the defensive, which, in turn, acts as a headwind for the USD/CAD pair. Meanwhile, crude oil prices come under some renewed selling amid hopes that the Russia-Ukraine energy ceasefire will boost supplies, which could undermine the commodity-linked Loonie. Adding to this, the divergent Bank of Canada (BoC)-US Federal Reserve (Fed) policy outlook might hold back traders from placing aggressive bullish bets on the Canadian Dollar (CAD) and limit losses for the currency pair.

The BoC is expected to maintain a predominantly dovish policy stance amid a sluggish domestic economy, reaffirmed by Friday’s dismal jobs data. Traders seem convinced that the BoC has less reason to raise interest rates a weaker economic outlook could contain broader inflationary pressures. In contrast, the Fed has shifted to a more hawkish stance, pointing to one additional 25-basis-point (bps) rate hike in late 2026. This, along with the US-Iran standoff over the Strait of Hormuz, could support the safe-haven USD and act as a tailwind for the USD/CAD pair.

In the latest developments surrounding the Middle East crisis, Iran’s top security official declared Washington’s response to its proposal for reopening the strategic waterway insufficient, while US President Donald Trump considers renewed military strikes against Tehran. This keeps the geopolitical risk premium firmly in play and backs the case for the emergence of some USD dip-buying. Traders might also refrain from placing aggressive directional bets on the USD/CAD pair amid holiday-thinned trading volumes and ahead of this week’s key data/events.

The US inflation reports – the Producer Price Index (PPI) and Consumer Price Index (CPI) – will be published on Wednesday and Thursday, respectively. This will be followed by Fed Chair Kevin Warsh and BoC Governor Tiff Macklem’s speeches on Friday, at the annual meetings of the IMF and World Bank in Bangkok. Investors will look for any hints about the central bank’s future policy path, which, in turn, would provide a fresh impetus to the USD/CAD pair. Nevertheless, the fundamental backdrop seems tilted firmly in favor of bullish traders.

USD/CAD daily chart

Technical Analysis

The range-bound price action witnessed over the past week or so might be categorized as a bullish consolidation phase against the backdrop of a strong rally from the September swing low. However, sustained strength above the 1.4300 mark is needed to reaffirm the constructive outlook and pave the way for additional gains. On the downside, the recent swing area around 1.4200–1.4210 acts as the first line of underlying demand, and a deeper pullback toward the 1.4150 region would still leave the broader uptrend intact.