Canadian Dollar Weakness Continues Amid Interest Rate Differentials and Oil Price Decline

The Canadian dollar has been under pressure due to dual factors - interest rate differentials and declining oil prices. The USD/CAD exchange rate reached a three-month high, with a cumulative gain of approximately 2.5%, after consolidating in a narrow range around the 1.4235 level during the Asian session on Thursday.

The Bank of Canada's dovish policy stance and persistent trade concerns between the U.S. and Canada have left the Canadian dollar relatively weak. The recent decline in international oil prices has further undermined support for the CAD, which is highly correlated with commodity prices.

From a fundamental perspective, the balance favors USD bulls. The Bank of Canada's wait-and-see approach contrasts sharply with the Federal Reserve's tightening bias, widening the expectation for the U.S.-Canada interest rate differential and reducing the attractiveness of CAD-denominated assets.