Canadian Dollar Steadies Amid Oil Uncertainty and Hawkish Fed Sentiment

USD/CAD paused for breath during Thursday's Asian session after three consecutive days of gains, with the pair trading near 1.4103. The commodity-linked Canadian dollar held its ground amid cautious sentiment surrounding oil prices, keeping USD/CAD rangebound.

**Oil Price Uncertainty Caps Loonie Performance**

The crude oil market faces multiple uncertainties that directly influence the Canadian dollar's trajectory. Federal Reserve Chair Jerome Powell previously emphasized that the potential impact from Middle East conflicts is extremely broad, with overall uncertainty remaining elevated, and that oil price shocks would be reflected in inflation, requiring the Fed to "wait and see how things develop." Additionally, market analysts noted that with oil prices remaining elevated, the likelihood of the Fed raising interest rates this year is climbing, a prospect that also pressures risk-sensitive currencies. The unclear oil price outlook leaves the crude-correlated Canadian dollar without clear direction.

**Hawkish Fed Tone Supports the Greenback**

Hawkish voices within the Federal Reserve are providing support for the U.S. dollar. At the most recent policy meeting, three voting members did not support retaining the easing bias in the policy forward guidance, preferring instead to convey a clear signal that the next rate move could be either a hike or a cut. Powell also stated that the Fed's current policy stance is well-positioned to handle the impact of energy supply shocks on the economy. Market participants interpret this as the Fed maintaining rates unchanged for a period until the contours of economic data, outlook, and risks become clearer, with this wait-and-see but slightly hawkish tone limiting downside for the dollar.

**Short-Term Range-Bound Trading Likely**

Taken together, USD/CAD lacks a catalyst for a one-sided breakout in the near term. On one hand, oil prices face a tug-of-war between geopolitical tensions and potential demand shifts, making it difficult for the Canadian dollar to sustain upward momentum. On the other hand, the Fed's timing on rate cuts is highly uncertain, with even the possibility of resuming hikes, which keeps dollar bears cautious. According to tools such as CME FedWatch, market expectations for the Fed's next move remain sharply divided. Against this backdrop, USD/CAD is likely to continue consolidating around current levels in the short term.