Canadian Dollar weakens amid falling oil prices as USD holds steady ahead of US PCE

The Canadian Dollar (CAD) experienced a weakening trend as oil prices continued to decline while the US Dollar (USD) remained stable, ahead of the upcoming release of the US Personal Consumption Expenditures (PCE) Price Index. This data is crucial for investors as it provides insight into the Federal Reserve's (Fed) future policy decisions, which in turn impacts the USD.

Lower odds of an immediate rate hike by the Fed, coupled with decreasing US bond yields and recent improvements in US-Iran relations, have put downward pressure on the USD/CAD pair. Meanwhile, the US Treasury is set to release nearly $1 trillion to back the increased buybacks of longer-term bonds, which results in further declines in US bond yields and negatively affects the USD.

Furthermore, the US recently offered Iran sanctions relief and an end to the naval blockade in exchange for opening the Strait of Hormuz and halting attacks by regional proxies. This development has sparked optimism over a diplomatic resolution to the six-month conflict, which has also contributed to the decrease in crude oil prices.

The US-Canada trade war has further complicated the situation for the Canadian Dollar, as new tariffs on US goods imposed in retaliation to Washington's 50% tariffs on Canadian goods deepen the conflict. Despite this mixed backdrop, the USD/CAD pair remains bearish in the short term, trading below the 100-period Simple Moving Average (SMA) on the 4-hour chart at 1.3912.

Traders are advised to treat this barrier as a potential selling point until spot prices convincingly surpass this moving average to alleviate the current downside bias and pave the way for a more positive market phase.