The USD/CAD pair advanced toward 1.3950 during Asian trading on Tuesday, supported by a rebound in the US Dollar (USD). However, the upside momentum may remain limited amid concerns over a prolonged US government shutdown and rising crude oil prices. Market participants now await Canada’s International Merchandise Trade and Ivey Purchasing Managers Index (PMI) data, due later in the day, for fresh directional cues.
US government shutdown weighs on sentiment
Traders continue to monitor developments in Washington as the US government shutdown extends into its seventh day. Congress has so far failed to pass a funding bill to reopen federal operations, while the Trump administration has signaled plans to reduce the federal workforce. Prolonged political gridlock could weigh on the US economy and, by extension, the Greenback, potentially limiting further USD upside against the Canadian Dollar (CAD).
Oil price gains support the Canadian Dollar
Crude oil prices edged higher after the Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed to a smaller-than-expected increase in production levels. The rise in oil prices typically benefits the commodity-linked Canadian Dollar, as Canada remains the largest oil exporter to the United States. Sustained strength in crude markets may therefore act as a counterbalance to USD strength, capping gains in the USD/CAD pair.
Focus shifts to Fed speakers for policy cues
Attention now turns to a series of Federal Reserve (Fed) officials scheduled to speak later on Tuesday, including Raphael Bostic, Michelle Bowman, Stephen Miran, and Neel Kashkari. Any hawkish commentary suggesting resistance to aggressive rate cuts could help the US Dollar retain support in the near term, offsetting the broader downside risks stemming from the ongoing government shutdown.
