The pair is trending lower, dropping close to the key psychological level of 1.3800 amid broad-based U.S. dollar weakness.

Traders have raised their expectations for Federal Reserve rate cuts following softer-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) data released last week. An additional factor weighing on the dollar is concern that President Trump's new legislative proposal could further worsen the U.S. budget deficit. These concerns contributed to further dollar weakness—even yesterday's upbeat U.S. Services PMI data failed to support the greenback.

This is the primary driver pressuring the USD/CAD pair to the downside.

The oil market is also playing an important role. Crude oil prices have halted their recent pullback but remain under pressure due to uncertainty surrounding nuclear negotiations between the U.S. and Iran.

This situation supports the Canadian dollar, as Canada's economy is highly dependent on oil exports. Moreover, stronger-than-expected Canadian core inflation data released on Tuesday have reduced the likelihood of a June rate cut by the Bank of Canada, further supporting the loonie.

Fundamentally, the path of least resistance for the USD/CAD pair remains downward. Technical analysis confirms this bearish outlook, as this week's break below the 1.3900 level signals continued downside momentum. Additionally, oscillators on the daily chart remain in negative territory, reinforcing the bearish view.

To identify new trading opportunities today, attention should be paid to the release of Canadian retail sales data and U.S. new home sales, which could provide fresh directional impulses for the pair.