• The Canadian Dollar extends gains against the US Dollar, supported by a softer Greenback and firmer Oil prices.
• US Dollar sentiment remains fragile as Fed easing expectations build after weak labour market signals.
• A more cautious Bank of Canada outlook, contrasted with growing Fed rate-cut bets, keeps near-term risks in USD/CAD tilted to the downside.

The Canadian Dollar (CAD) remains on the front foot against the US Dollar (USD) on Monday, as a softer Greenback and firmer Oil prices continue to underpin the Loonie. At the time of writing, USD/CAD is trading around 1.3568, its lowest level since January 31, down more than 0.50% on the day.

The Greenback remains under pressure as US President Donald Trump’s unpredictable trade policy, repeated attacks on the Federal Reserve’s (Fed) independence and mounting concerns over the US fiscal outlook weigh on confidence in US policy credibility.

China has urged domestic banks to curb exposure to US Treasuries on market-risk concerns, due to worries over concentration risk and heightened volatility, Bloomberg News reported on Monday, according to people familiar with the matter. The advisory does not apply to China’s government’s sovereign holdings of US Treasuries.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, is trading around 96.89, extending its decline for a second straight day.

Meanwhile, sustained expectations of further monetary policy easing by the Fed are adding to the downside pressure on the US Dollar, with markets currently pricing in around two rate cuts this year.

Those easing bets were reinforced by softer US labour-market data released last week. The JOLTS survey showed job openings falling to 6.542 million in December, well below the 7.2 million market forecast and down from 6.928 million previously, marking the lowest level since 2020.

At the same time, ADP private payrolls rose by just 22,000 in January, undershooting expectations for 48,000 and slowing from 37,000 in the prior month.

Attention now turns to key US economic releases this week, with the focus squarely on the delayed Nonfarm Payrolls (NFP) report and the Consumer Price Index (CPI). The upcoming data are likely to play a key role in shaping the near-term direction of the US Dollar, as traders gauge the timing of the first interest rate cut this year.

According to the CME FedWatch Tool, markets currently see a 51% probability of a first rate cut in July.

In Canada, last week’s mixed jobs data, with weaker employment but a lower unemployment rate, backs the case for the Bank of Canada (BoC)to hold interest rates for longer.

Against this backdrop, a growing divergence between Fed easing expectations and a more cautious BoC outlook keeps the near-term bias in USD/CAD tilted to the downside.

Oil prices are also lending support to the commodity-linked Loonie, as Canada is a major crude exporter. West Texas Intermediate (WTI) crude is trading near $64.00 per barrel, up around 1% on the day.