Canadian Dollar Firms as Oil Prices Rise

USD/CAD extended its decline on Friday, falling for a third consecutive session. The Canadian dollar drew support from rising crude prices, weighing on the currency pair.

**Oil Prices and Loonie Linkage**

As a commodity-linked currency, the Canadian dollar tends to track movements in crude prices. Recent gains in oil have provided upward momentum for the loonie, offsetting the impact of a modestly firmer US dollar. This correlation is widely recognized in the market.

**Short-Term and Medium-Term Factors Intertwine**

Canada's higher-than-expected July inflation data released earlier also lent support to the Canadian dollar. However, from a medium-term perspective, market views are divided. According to TradingKey analysts, Canada's slowing economic growth and a widening policy rate gap with the US could weigh on the loonie, while the medium-term oil price outlook also faces uncertainties such as OPEC+ spare capacity.

**Geopolitical Risks Loom**

Geopolitical tensions have provided a risk premium for oil prices while also underpinning safe-haven demand for the US dollar. With a mix of bullish and bearish factors at play, USD/CAD is biased toward range-bound trading in the near term, though downside room is limited by US dollar demand.