USD/CAD consolidates near 1.3770 amid Fed-BoC divergence, oil weakness

Finance

USD/CAD consolidates near 1.3770 amid Fed-BoC divergence, oil weakness

The USD/CAD pair is seen oscillating in a narrow range during the Asian session on Friday and consolidating its recent heavy losses to the lowest level since September 17, which it touched the previous day. Spot prices currently trade around the 1.3770 region, nearly unchanged for the day, and seem vulnerable to decline further.

The US Dollar (USD) continues with its relative underperformance on the back of dovish Federal Reserve (Fed) expectations. In fact, the US central bank projected just one more rate cut in 2026. However, comments from Fed Chair Jerome Powell lifted bets for more rate cuts next year, which, along with the prevalent risk-on environment, continues to undermine the safe-haven buck and weigh on the USD/CAD pair.

The Canadian Dollar (CAD), on the other hand, benefits from the Bank of Canadas (BoC) hawkish signal that the rate-cutting cycle was over. BoC Governor Tiff Macklem said on Wednesday that the current rate is at about the right level to give the economy a boost through a structural transition. This marks a significant divergence in comparison to the Fed and validates the negative outlook for the USD/CAD pair.

However, this weeks steep decline in Crude Oil prices, to the lowest level since October 21, might keep a lid on further gains for the commodity-linked Loonie and help limit losses for the currency pair. Traders now look to speeches from influential FOMC members for some impetus later during the North American session. Nevertheless, the USD and the USD/CAD pair remain on track to register losses for the third straight week.