Canadian Dollar bulls seem hesitant as firmer USD counters elevated Oil prices

USD/CAD regains positive traction as sustained safe-haven flows continue to benefit the USD.
Supply disruption worries remain supportive of elevated Oil prices, underpinning the Loonie.
Traders now look to the US macro data, though the focus remains on geopolitical developments.

Haresh Menghani FXStreet

The USD/CAD pair attracts fresh buyers following the previous day's late pullback from the highest level since January 23 and climbs back closer to the 1.3700 mark during the Asian session on Wednesday. Spot prices, however, remain confined in a range held over the past two weeks or so, warranting caution for bullish traders amid a combination of diverging forces.

The US Dollar (USD) continues with its relative outperformance on the back of sustained safe-haven flows, bolstered by rising geopolitical tensions in the Middle East. Furthermore, traders have been trimming their bets for three interest rate cuts by the US Federal Reserve (Fed) amid concerns about sticky inflation, which turns out to be another factor supporting the buck. The USD Index (DXY), which tracks the Greenback against a basket of currencies, retains its bullish bias below its highest level in over three months and acts as a tailwind for the USD/CAD pair.

Meanwhile, Iran’s Islamic Revolutionary Guard Corps (IRGC) announced that the Strait of Hormuz is closed for shipping traffic and warned that any vessel attempting to pass through the strategic waterway would be set on fire. The closure of the strait, which is one of the world’s most critical oil transit routes, threatens global supply and keeps the black liquid within striking distance of the highest level since June 2025. This, in turn, underpins the commodity-linked Loonie and holds back traders from placing aggressive bullish bets around the USD/CAD pair.

Market participants now look forward to the US economic docket – featuring the release of the ADP report on private-sector employment and the ISM Services PMI. The reaction to the data, however, is more likely to be muted as the focus remains glued to geopolitical developments. Moreover, the aforementioned mixed fundamental backdrop makes it prudent to wait for strong follow-through buying before positioning for any further appreciating move for the USD/CAD pair.

Canadian Dollar FAQs

What key factors drive the Canadian Dollar?

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

How do the decisions of the Bank of Canada impact the Canadian Dollar?

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

How does the price of Oil impact the Canadian Dollar?

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

How does inflation data impact the value of the Canadian Dollar?

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

How does economic data influence the value of the Canadian Dollar?

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

AUD/USD extends the range play above 0.7200 as traders await US inflation data

AUD/USD is seen extending its consolidative price move above 0.7200 during the Asian session on Thursday amid mixed cues. Rising RBA rate-hike bets keep the Aussie close to its highest level since May 14. However, hawkish Fed expectations and escalating US-Iran tensions offer some support to the US Dollar, capping the currency pair as traders await US inflation figures.

USD/JPY consolidates around 153.50 as bears turn cautious ahead of US inflation

USD/JPY stabilizes above 153.50 during the Asian session on Thursday, but remains near a seven-month low set earlier this week as hawkish BoJ repricing continues to underpin the Japanese Yen. Meanwhile, rising September Fed rate-hike bets and escalating US-Iran tensions help ease US Dollar selling pressure, offering some support to the currency pair ahead of US inflation figures.

Gold holds steady above $4,400 as traders seem hesitant ahead of US inflation data

Gold hovers around the $4,400 mark through the Asian session on Thursday as traders seem hesitant to place directional bets ahead of US inflation figures. The US Producer Price Index report will be published later this Thursday, while the US Consumer Price Index is due on Friday. The key data will provide more cues about the Federal Reserve's policy path, which should influence US Dollar price dynamics and provide a fresh impetus to the non-yielding bullion.

XRP rally cools, XLM heads toward a make-or-break support

Ripple (XRP) and Stellar (XLM) trade under pressure on Thursday after losing over 2% and 3% so far this week. XRP and XLM are both nearing their crucial support zones, which could determine the next directional move. Meanwhile, mixed derivatives and on-chain data suggest upside potential remains limited for both altcoins. CryptoQuant’s summary data shows cautious signs for both altcoins.

Jobs opened the door for the Fed — inflation decides whether it walks through

The latest US jobs report did not end the debate over the Federal Reserve’s (Fed) next move. It may have done something more subtle: it gave policymakers permission to keep their options open. After months of softer labour market signals, August delivered a stronger-than-expected rebound.

Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight

The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.