Canadian Dollar corkscrews as market sentiment roils on fresh tariff threats

The Canadian Dollar held flat against the US Dollar on Tuesday, but volatility remains.
The Loonie briefly gained ground against the Greenback before falling back to opening bids.
Tariff talk remains the key ingredient in market sentiment this week amid mid-tier data releases.

Joshua Gibson FXStreet

The Canadian Dollar (CAD) struggled on Tuesday, briefly gaining ground against the US Dollar (USD). Risk-off flows returned to the forefront and kicked the Loonie back into the day’s opening bids just below 1.3700.

Tariff talk is back on top of the market headlines pile. Early this week, the Trump administration kicked the can down the road on its own self-imposed deadline to enact reciprocal tariffs that were announced in early April and then immediately delayed to July 9. The Trump team has now delayed the already-delayed tariffs to August 1, with President Donald Trump insisting that now, this time, there won’t be any further delays, and also added further tariff threats to the pile of import taxes that may or may not loom ahead.

Daily digest market movers: Canadian Dollar struggles to find gains amid rising risk aversion

The Canadian Dollar remains on the low side of near-term market action as risk-off flows bolster the Greenback.
The US Dollar’s ongoing downtrend against the Loonie could be nearing its end as investors and business operators both begin to buckle under the weight of an amorphous trade outlook.
President Trump has announced double-digit tariff increases against a handful of countries, including South Korea and Japan, to take effect on August 1.
President Trump also announced a 50% tariff on all copper imports to match already-standing steel and aluminum tariffs.
Despite announcing that the copper tariffs would begin “today”, nobody is aware of whether or not that will actually come to pass.

Canadian Dollar price forecast

Despite holding below a descending trendline near 1.3700, USD/CAD is beginning to tilt toward the high side. Daily candlesticks are poised to mark in a double bottom chart pattern, signaling that a long-term turnaround in ongoing Greenback weakness could be approaching over the horizon.

USD/CAD daily chart

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

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

AUD/USD bulls seem hesitant near 0.6950

AUD/USD attracts some buyers for the second straight day, though it remains confined within Friday's broader range amid mixed cues. The US PCE data and the US NFP report released last week tempered October Fed hike bets, dragging US bond yields away from multi-year highs and keeping US Dollar bulls on the back foot. However, geopolitical uncertainty is a tailwind for the safe-haven buck, while the RBA's cautious outlook caps the Aussie.

USD/JPY remains confined in a range below 158.00

USD/JPY holds steady around 157.75 during the Asian session on Monday, trading within a one-week-old range. Against the backdrop of soft US PCE data, the US NFP report, released on Friday, tempers October Fed rate-hike bets and drags US bond yields away from multi-year highs. Furthermore, hawkish BoJ expectations amid looming intervention risks support the Japanese Yen, capping the pair. However, geopolitical uncertainty acts as a tailwind for the safe-haven buck and limits the downside.

Gold trades with positive bias around $4,150; upside seems capped

Gold attracts some dip-buyers at the start of a new week, though it remains confined in a familiar range held over the past week or so. Against the backdrop of soft US PCE data, Friday's weak US NFP report tempered bets of an October Fed rate hike. This, in turn, drags US bond yields away from multi-year highs and benefits the non-yielding bullion. The US Dollar, however, draws support from geopolitical uncertainties and could act as a headwind for the precious metal.

Week ahead: Fed minutes in the spotlight amid bond market rout

The first full week of October and the final quarter of the year get underway with little fanfare in terms of the economic agenda. But far from being short on excitement, the coming week will test market nerves, as government bond yields continue to soar on growing worries that the energy crisis will only get worse, fuelling inflation.

CFTC Report: Speculators turn more defensive as Oil exposure falls

The week in one sentence: During the week leading up to September 29, long positions in crude oil were significantly reduced, while short positions in the Canadian Dollar went up. In addition, the positioning of the Australian Dollar and the Japanese Yen declined, while Coffee buying stood out against a more general background of defensiveness.

The Euro is near a one-year low: Inflation could trigger its rebound, not its fall

EUR/USD has fallen to its lowest level since May 2025. The pair hit 1.1312 on Wednesday and trades well below the January peak of 1.2082. The decline reflects a powerful combination of US Dollar strength, geopolitical uncertainty and renewed concerns about Europe's exposure to higher energy prices.