• USD/CAD trades slightly lower at around 1.3655 after a flat day previously.
• Declining Oil prices weigh on the Canadian Dollar, although structural support remains.
• Diverging policy outlooks between the Fed and the BoC keep volatility elevated.

USD/CAD trades around 1.3655 on Thursday, down 0.21% on the day, after stabilizing in the previous day. The pair faces short-term pressure due to a modest pullback in the US Dollar, although downside momentum may remain limited in an uncertain macro environment.

The Canadian Dollar (CAD) shows resilience despite the recent decline in Oil prices, a key driver for the commodity-linked currency. West Texas Intermediate (WTI) is falling after several days of gains, trading around $103 per barrel, which typically weighs on the Loonie given Canada’s position as the largest Crude exporter to the United States (US). However, ongoing geopolitical tensions in the Middle East and potential supply disruptions continue to support the broader outlook for Canada’s energy sector.

On the monetary policy front, the Bank of Canada (BoC) kept its policy rate unchanged at 2.25% and adopted a wait-and-see stance while keeping options open. Governor Tiff Macklem emphasizes a data-dependent approach, noting that no preset path is in place. Inflation is projected slightly higher for 2026 and wage pressures remain persistent, limiting the scope for near-term easing. The central bank also signaled that trade shocks from the United States could justify rate cuts, while sustained energy-driven inflation could require tightening.

On the US side, the US Dollar (USD) corrects lower after two days of gains. The Federal Reserve (Fed) held rates within the 3.5%-3.75% range, with a divided vote reflecting rare internal disagreement. Chair Jerome Powell reiterated that inflation remains elevated, partly due to higher energy prices, reinforcing a broadly hawkish stance.