The pair rises above 1.3900 amid slowing Canadian growth and rising odds of a 2026 Fed hike.
The USD/CAD pair extended gains to a two-month high near 1.3900 during Thursday’s Asian session, driven by widening monetary policy divergence between the US Federal Reserve and the Bank of Canada. Canada’s economy contracted for two consecutive quarters in early 2026, meeting the technical definition of a recession, while rising unemployment and weak consumer demand pressure the BoC toward rate cuts.
Markets now price a greater than 50% chance of a Fed rate hike in 2026, contrasting with expectations of BoC easing. Persistent geopolitical risks, including US-Iran tensions in the Middle East, further bolster demand for the safe-haven USD. Oil prices remain elevated but fail to offset CAD weakness amid broader macroeconomic concerns.