Canadian dollar remains under pressure as stronger USD and trade war offset oil price gains

USD/CAD extended its rebound from three-month lows on Tuesday, trading around 1.38594, holding a positive bias for a second consecutive session. However, with multiple forces at play—a stronger dollar, trade war concerns, and higher oil prices—the near-term direction remains unclear, and the market stays cautious about chasing further upside.

**Stronger USD and trade war pose major headwinds**

A broadly firmer dollar is one of the core factors weighing on the Canadian dollar. Meanwhile, persistent trade war concerns continue to pressure the commodity-linked loonie, offsetting the support that stronger oil prices should have provided. Market signals show that, amid these conflicting forces, USD/CAD spot lacks sufficient bullish conviction, and investors remain on the sidelines before betting on a continued rebound.

**Higher oil prices offer floor support but with limited strength**

Oil prices have firmed on heightened geopolitical tensions, which theoretically supports the Canadian dollar as a major oil producer. USD/CAD had briefly broken below the 1.3800 handle, and it was precisely the strength in oil that provided support for the loonie. However, looking at the current trend, the positive impact from oil has not been enough to fully offset the drag from a stronger dollar and trade war worries. The pair remains trading above the mid-1.3800s, but the rebound lacks momentum.

**Near-term direction awaits confirmation**

Overall, USD/CAD is caught in a tug-of-war between bullish and bearish forces. Dollar strength and trade war risks weigh on the Canadian dollar, while elevated oil prices limit the pair's upside. In the absence of clear catalysts, whether the rebound from three-month lows can extend further still needs confirmation, and the market prefers to wait for clearer directional signals before positioning.