The Canadian dollar, which is closely tied to commodity prices, faces challenges due to falling oil prices, potentially leading to strength in the USD/CAD currency pair. As of this writing, West Texas Intermediate (WTI) crude is trading lower at around $56.3 per barrel. However, intensifying geopolitical tensions may limit the downside for oil. The United States has ordered a complete halt to all maritime traffic involving sanctioned tankers traveling to and from Venezuela. Meanwhile, Washington is pushing for tougher sanctions on Russia's energy sector to support peace negotiations regarding Ukraine, raising concerns about potential disruptions to global oil supplies. Despite the International Energy Agency (IEA)'s forecast of an unprecedented supply glut in the global crude market, Canadian oil sands producers are planning to ramp up output in 2026. Led by Cenovus Energy Inc., major Canadian oil companies have generally projected further production increases in their latest guidance. Cenovus alone expects an 18% rise in output, primarily driven by its acquisition of MEG Energy Corp. and expansion projects at existing assets. Canadian drillers are accelerating production to take advantage of spare pipeline capacity to export terminals on the Pacific coast. The Trans Mountain Pipeline system, whose expansion was completed last year, is not expected to operate at full capacity until 2027. In parallel, Enbridge Inc. is advancing expansion plans to enhance the transport of oil sands crude to the U.S. market. The anticipated increase in Canadian crude supply could exacerbate global supply-demand imbalances, contributing to a sharp decline in U.S. benchmark crude prices this year. As the world's fourth-largest crude oil producer, Canada's influence in the global energy landscape is enhancing steadily.

The USDX is currently hovering around 98, largely flat intraday, as traders await the release of U.S. consumer inflation data before making fresh bets. The key U.S. CPI report is due later in the North American trading session, and markets will scrutinize it closely for clues about the Federal Reserve's future policy direction — a critical factor for the next move in the greenback. Ahead of the data release, expectations for dovish Fed policy have kept dollar bulls cautious and placed downward pressure on the CPI outlook. Although the Fed remains cautious about the economic outlook, signs of labor market weakness have led traders to price in the possibility of two more rate cuts by 2026. Additionally, there is speculation that the incoming Fed Chair will adopt a dovish stance and cut rates further under political pressure. In fact, President Donald Trump stated on Wednesday that the next Fed Chair would be someone who firmly believes in cutting interest rates significantly. However, Fed Governor Christopher Waller — one of five potential successors to Jerome Powell — emphasized to President Trump the importance of central bank independence, which in turn provides some support for the dollar. Nevertheless, broader fundamentals appear to favor the bears, suggesting the dollar is more likely to depreciate. 

Based on the daily chart, USD/CAD has broken below the EMA200 and is moving along the Bollinger Lower Band. However, a bullish engulfing pattern has emerged, breaking through the descending channel, indicating a potential short-term rebound. After a death cross, both the signal and MACD lines have fallen below the zero axis, signaling a bearish trend. The RSI stands at 32, entering oversold territory, confirming the ongoing downtrend with potential rebounds. In the 4-hour chart, the Bollinger Bands are narrowing, and the moving averages are converging. Following a MACD golden cross, the signal and MACD lines have pulled back near the zero axis, indicating that a trend reversal could happen soon. Resistance levels are located near the EMA50 and EMA200 at 1.381 and 1.392, respectively. The RSI is at 44, reflecting relatively pessimistic market sentiment. Therefore, it is better to buy now and sell later.

Trading direction: Buy

Entry price: 1.376

Target price: 1.42

Stop loss: 1.357

Support: 1.373/1.37/1.357

Resistance: 1.414/1.42/1.44