Canadian Dollar remains depressed as firmer USD and trade war counter higher oil prices

The USD/CAD pair maintained its positive trend on Tuesday, hovering around the mid-1.3800 range during the Asian session. However, the market's bullish outlook remains uncertain due to conflicting factors. Inflation concerns arising from volatile energy prices prevent a clear projection of a further interest rate hike by the US Federal Reserve in 2026.

Additionally, persistent geopolitical tensions bolster the US Dollar, aiding the USD/CAD pair's recovery from its lowest point since mid-May. The recent surge in crude oil prices could support the commodity-linked Loonie and limit the pair's gains. Tensions between the US and Iran have increased, with the US Treasury Secretary announcing a plan to isolate Iran from the global economy.

In response, Canada's Prime Minister Mark Carney stated that retaliatory tariffs would be imposed starting September 8. This intensified uncertainty in US-Canada trade relations is seen as a downside risk for the Canadian Dollar. The technical analysis suggests a mildly bearish bias for the USD/CAD pair, with the nearest resistance at the 200-day EMA around 1.3885 and subsequent targets at the 38.2% Fibonacci level at 1.3928 and the 50.0% retracement near 1.3988.

Support is provided by the 23.6% retracement at 1.3852, with a more critical structural floor at the Fibonacci anchor near 1.3731. Fundamental factors such as the Bank of Canada's interest rate setting, oil prices, Canada's economic health, inflation, trade balance, and market sentiment also play a significant role in determining the Canadian Dollar's value.