The USD/CAD pair continued its decline during Thursday's Asian trading session, hovering near the 1.4100 level as markets assessed the interplay between rising oil prices, US dollar dynamics, and monetary policy expectations in North America. While the pair has seen a correction after a recent rebound from the psychological 1.4000 support, the absence of sustained selling pressure suggests caution is warranted in determining whether this week's recovery has concluded.

A significant factor in the recent weakness of USD/CAD stems from the crude oil market. Escalating tensions in the Middle East have refocused attention on global energy supply risks, pushing WTI crude prices to a new high since June 11th. Market data indicates a notable decline in shipping activity through the Strait of Hormuz, raising investor concerns about potential disruptions to global oil supply and fueling a continued rise in energy prices.

Concurrently, risks in the Red Sea region have intensified. The Houthi group in Yemen, which has close ties to Iran, announced a blockade targeting Saudi Arabian ports, sparking fears of impact on another crucial energy transport route. Should shipping pressures in the Red Sea persist and expand, global crude oil supply chains could face greater uncertainty, potentially driving energy prices even higher.

Given the Canadian economy's high dependence on energy exports, the Canadian dollar is often viewed as a classic commodity currency. Rising crude oil prices improve expectations for Canadian export revenues, typically leading to increased demand for Canadian dollar-denominated assets. The recent oil price surge has thus become a key factor supporting the loonie and exerting downward pressure on USD/CAD. Furthermore, a relatively soft performance by the US dollar has added to this downward pressure. While the greenback previously strengthened on safe-haven flows, a market repositioning has led to a pullback in the US Dollar Index, removing a key driver for further USD/CAD gains.

However, the rise in oil prices also introduces new inflationary pressures, which could alter market expectations for the Federal Reserve's policy path. Sustained high energy prices may reignite inflationary pressures in the US, leading investors to increase bets on future Fed rate hikes. According to the CME FedWatch Tool, the market currently prices in a probability exceeding 90% for a Fed rate increase by the end of this year. This rising rate expectation has pushed US Treasury yields to multi-month highs, providing some support for the US dollar. Consequently, while USD/CAD is pressured by oil prices and a stronger loonie, the US dollar's interest rate advantage continues to limit the pair's downside.

Simultaneously, market expectations that the Bank of Canada will maintain stable rates for the remainder of 2026 are capping the Canadian dollar's further appreciation potential. If Canadian monetary policy remains relatively accommodative while the Fed sustains higher interest rates, the interest rate differential between the two currencies could continue to support the US dollar.

Additionally, the trade relationship between Canada and the United States remains a significant influence on the loonie's trajectory. Recent announcements by former US President Donald Trump regarding 50% tariffs on Canadian goods have sparked concerns about Canada's export outlook. Such trade-related anxieties could dampen bullish sentiment for the Canadian dollar and limit further downside for USD/CAD.

Going forward, market focus will center on Canadian retail sales data, US initial jobless claims, and the latest geopolitical developments. Strong Canadian economic data coupled with sustained high oil prices could keep USD/CAD under pressure. Conversely, heightened trade concerns or a further strengthening of Fed rate hike expectations could provide the pair with renewed upward momentum.

From a technical perspective on the daily chart, USD/CAD shows a recent pullback after rebounding from near 1.4000, currently retesting the area below 1.4100. The overall short-term trend appears to be one of consolidation. Key resistance lies in the 1.4150 to 1.4200 zone; a break above 1.4200 could signal a resumption of the recovery structure. Immediate support is seen at 1.4050, followed by the psychological 1.4000 level. Technical indicators show the MACD's bullish momentum is waning, and the price has retreated towards short-term moving averages, indicating a rebalancing of market forces.

On the 4-hour chart, the price structure shows a consolidative decline, with short-term moving averages gradually turning into a resistance area. A retreat in the RSI indicator suggests a decrease in short-term buying momentum. However, no clear breakdown has been established. If support near 1.4050 holds, a rebound towards the 1.4150 area remains possible. A break below 1.4000 could open the path for further declines, with a target near 1.3950.

The current USD/CAD movement reflects the complex interplay of energy markets, monetary policy, and trade factors. Rising oil prices, driving Canadian dollar strength, are the primary short-term pressure point. Yet, expectations for Fed rate hikes and uncertainties surrounding Canadian exports are limiting the pair's downside. In the near term, oil price trends and Middle East supply risks will likely dictate the loonie's direction. If energy transport risks escalate and oil prices stay elevated, the Canadian dollar could gain further support, potentially pushing USD/CAD to test the 1.4000 area. Conversely, a renewed focus on Fed tightening expectations or heightened trade concerns could trigger a rebound. Currently positioned at a critical technical juncture, USD/CAD lacks a definitive advantage for either bulls or bears. Its subsequent trajectory will depend on energy market developments, North American economic data, and shifts in global risk sentiment.