## Why Oil Price Fluctuations Are Reshaping USD/CAD: A 1.3870 Snapshot

The USD/CAD pair is hovering near 1.3870 as the week heads into the crucial US jobs report, but the real story here isn't just about labor data—it's about how oil price movements continue to dictate the Canadian Dollar's fate. When you understand how oil gauge goes up and down in global markets, you start seeing why the CAD has been under pressure.

Here's the pressure point: Venezuelan crude is flooding into US markets. Oil giants Chevron, along with trading powerhouses Vitol and Trafigura, are competing to move roughly 50 million barrels of PDVSA's inventory into the US under ongoing negotiations. More Venezuelan supply means less demand for Canadian heavy crude, which directly impacts Canada's export competitiveness and revenue streams. It's a simple equation—when oil prices fall and competition increases, the CAD weakens against the USD.

**The Labor Report and Rate Cut Expectations**

On Friday, markets are laser-focused on Canada's employment data for December alongside the US Nonfarm Payrolls (NFP). These releases matter because they shape central bank thinking. US Treasury Secretary Scott Bessent made waves on CNBC Thursday, arguing the Federal Reserve should keep cutting rates to unlock stronger growth. Yet according to CME FedWatch data, futures traders are pricing an 86.2% probability that the Fed will hold rates steady at its January 27-28 meeting—a clear disconnect between political pressure and market expectations.

**Why Oil Remains the King Factor**

The Canadian Dollar doesn't move in isolation. Oil is Canada's lifeblood export, so when crude prices soften, so does the CAD. The mechanics are straightforward: stronger oil prices boost aggregate demand for the Canadian currency and typically produce a positive trade balance, both supportive for the CAD. Conversely, weaker crude demand signals a headwind. This relationship explains why commodity-linked currencies like the CAD are so vulnerable when global supply chains shift—like they're doing now with Venezuelan oil reallocations.

**The Bigger Picture on Currency Drivers**

Interest rates from the Bank of Canada remain a core pillar of CAD strength, but they can't override commodity fundamentals. Inflation dynamics, economic growth signals (GDP, PMI, employment data), and risk sentiment all layer in, but oil price movements act as the primary throttle. When oil gauge goes up and down erratically, uncertainty spreads. A strong US economy paired with rate-hold expectations and weakening Canadian oil revenues creates the perfect storm for USD strength.

USD/CAD's persistence above 1.3850 reflects this confluence: softer oil, Venezuelan supply competition, and Fed patience combining to keep the Canadian Dollar under siege.