Canadian Dollar Weakens as Oil Prices Drop and Traders Eye Fed Meeting

The Canadian dollar lost ground against the U.S. dollar on Friday, weighed down by a retreat in crude oil prices and market anticipation of next week's U.S. Federal Reserve policy meeting.

Market Performance

The loonie, as the Canadian currency is commonly known, faced broad pressure during the session. Key figures from Friday's trading include:

• The currency traded 0.1% lower at 1.4095 per U.S. dollar, or 70.95 U.S. cents.
• It touched its weakest intraday level since July 14 at 1.4114.
• For the week, the Canadian dollar posted a 0.5% decline, breaking a two-week streak of gains.

This weekly slide was also influenced by recent U.S. threats to impose significant tariffs on a range of Canadian goods, according to market reports.

Oil and Fed Policy in Focus

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A sharp pullback in the price of oil, one of Canada's most significant exports, was a primary driver of the loonie's weakness. The price of a barrel of crude oil fell 3.8% to $88.72. Despite the daily drop, oil was on track for a weekly gain amid ongoing energy supply disruptions in the Red Sea and geopolitical tensions in the Middle East.

Rising energy prices have fueled concerns about global inflation, increasing expectations that the Federal Reserve may raise interest rates as soon as its upcoming meeting on Wednesday. This outlook tends to strengthen the U.S. dollar at the expense of other currencies.

Investor Sentiment and Outlook

Investor positioning reflects a growing caution toward the Canadian currency. According to recent data, speculators have increased their bearish positions on the Canadian dollar to the highest level among major currencies.

Looking ahead, strategists at Monex Europe noted that the loonie's direction will likely be dictated by movements in crude oil, broader risk sentiment, and trade-related news, in addition to the Fed's decision and upcoming Canadian GDP data for May.