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USD/CAD Slips to 1.3650 as Oil Rallies and Canada Withdraws Digital Tax to Ease Trade Tensions

The USD/CAD pair extended losses early Monday, dropping toward 1.3650, as the Canadian Dollar (CAD) found fresh momentum amid rising crude prices and progress in US-Canada trade relations.

Canada’s Finance Ministry announced the cancellation of its proposed digital services tax in an effort to restart broader trade talks with the United States. This move was seen as a diplomatic gesture ahead of negotiations set to conclude by July 21, following a mutual agreement between Prime Minister Mark Carney and President Donald Trump.

🇨🇦 CAD Strengthens on Oil Rally and Trade Optimism

The commodity-linked CAD continues to draw strength from a rebound in crude oil. WTI crude was last seen trading near $64.70 per barrel, benefiting from improved risk sentiment and progress in diplomatic efforts in the Middle East.

President Trump suggested he could back limited sanctions relief for Iran under peaceful conditions. Additionally, OPEC+ is preparing to boost production by 411,000 barrels/day in August, following a July increase. These developments support crude supply stability, offering tailwinds for the Canadian Dollar, given Canada’s role as a top US oil exporter.

🇺🇸 Weak US Data Weighs on the Dollar

On the US front, the US Dollar remains under pressure as markets increasingly price in a Fed rate cut in September. Last Friday’s disappointing data added to the dovish narrative:

Personal spending unexpectedly declined in May – the second drop this year.
Personal income dropped by 0.4%, marking the steepest fall since September 2021.

This economic softness, combined with political uncertainty surrounding the Fed’s leadership, has kept the USD from gaining traction.

📊 Focus Turns to US Jobs Data

Traders now await a critical week of labor data releases, which will help shape the Federal Reserve’s next move. Key expectations include:

June Nonfarm Payrolls: +110,000 jobs (vs. 135,000 in May)
Unemployment Rate: Ticking up to 4.3% from 4.2%
Wage Growth (YoY): Holding steady around 3.9%

Any significant miss in job figures could fuel expectations of aggressive rate cuts, potentially accelerating USD/CAD downside momentum.

🔍 USD/CAD Technical Outlook

Technically, USD/CAD has fallen below the 1.3700 level, with the next support seen at 1.3650—a level that has provided a short-term base in recent sessions. A break below this support could open the path to 1.3580, while a bounce may face resistance near 1.3730.