|

Canadian Dollar steadies as crude oil recovery offsets Greenback rebound

  • The Canadian Dollar holds steady against the US Dollar on Monday as the USD/CAD pair consolidates recent losses.
  • Crude oil prices tick higher, offering mild support to the commodity-linked Canadian Dollar, while a modest uptick in the US Dollar limits further gains.
  • Traders shift focus to key data releases this week, including US Durable Goods Orders, a speech by BoC Governor Macklem, US Core PCE inflation, and Canada’s Q2 GDP.

The Canadian Dollar (CAD) holds steady against the US Dollar (USD) on Monday, with the USD/CAD pair stabilizing after Friday’s sharp retreat from its highest level since May 20. The decline was triggered by Federal Reserve (Fed) Chair Jerome Powell’s dovish remarks at the Jackson Hole Symposium, which weighed heavily on the Greenback. While the US Dollar attempts a modest rebound to start the week, the Loonie remains supported by a slight recovery in crude oil prices, helping keep the pair anchored near recent lows.

At the time of writing, the USD/CAD pair is trading around 1.3820 during the American session. Meanwhile, the US Dollar Index (DXY), which measures the Greenback's value against a basket of six major currencies, is edging modestly higher after sliding nearly 1% on Friday. The index is currently hovering near the 98.00 level as the Dollar attempts to recover lost ground.

Trade dynamics between the United States and Canada are back in focus after Prime Minister Mark Carney confirmed on Friday that Ottawa will remove counter-tariffs on all US goods covered under the USMCA, effective September 1. The rollback, which applies to over $21 billion worth of US exports, including consumer staples such as wine, juice, household appliances, and packaged foods, marks a significant de-escalation in bilateral tensions.

Carney emphasized that Canada “currently has the best trade deal with the US” and highlighted the importance of preserving that advantage. However, tariffs on strategic sectors such as autos, aluminum, and steel will remain in place, as both sides “intensify discussions to address current trade challenges.” He also noted that it is “possible to have a deal with the US that applies to strategic sectors before the USMCA review officially begins,” hinting at a proactive effort to resolve disputes ahead of the 2026 review window.

Looking ahead, the economic docket will shape the next leg for the USD/CAD pair. On Tuesday, attention will turn to US Durable Goods Orders, followed by a speech from Bank of Canada (BoC) Governor Tiff Macklem on Wednesday. However, the key focus will be on Friday’s dual macro releases — the US Core Personal Consumption Expenditure (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, and Canada’s Q2 Gross Domestic Product (GDP) figures, which will offer fresh clues on the BoC’s policy path.

Canadian Dollar FAQs

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.

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.

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.

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.

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

Vishal Chaturvedi

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

More from Vishal Chaturvedi
Share:

Editor's Picks

AUD/USD bounces off multi-month low, nears 0.6900

AUD/USD edges higher toward 0.6900 in the Asian session on Wednesday, recovering some of the previous day’s losses to its lowest level since March as the US Dollar stalls the hot US CPI-inspired rally amid hopes of a US-Iran peace deal. Meanwhile, hawkish comments from FOMC members have almost confirmed another December rate hike, which favors USD bulls and should cap the Aussie.

USD/JPY remains capped below 159.00 amid looming intervention risks

USD/JPY struggles to build on the previous day’s strong gains to a near one-month top as intervention risk supports the Japanese Yen while hopes of a US-Iran peace deal cap the safe-haven US Dollar. That keeps the pair's upside limited below 159.00, for now.

Gold sticks to gains near $4,050 amid steeper Fed rate hike bets

Gold clings to recovery gains near $4,050 in the European session on Wednesday. However, upside seems limited amid sustained US Dollar demand. Tuesday's hot US inflation figures fuel expectations of a more aggressive policy tightening by the US Federal Reserve (Fed). This helps the Greenback preserve recent strong gains, despite hopes for US-Iran diplomacy.

Bitcoin at risk of sharp moves as leverage builds in derivatives markets

Bitcoin remains in a capped tone, trading around $73,800 after slipping to a low of $72,727 following the previous day’s hot US inflation figures. Institutional demand continues to weaken, with BTC spot Exchange Traded Funds recording a $95 million outflow on Tuesday, marking the fourth straight day of withdrawals. Traders should be cautious as a K33 Research report highlights that BTC is at risk of sharp moves as leverage builds in derivatives markets.

Hot CPI helps cement December Fed hike as Nvidia slumps
October CPI inflation landed yesterday and beat expectations across the board. Note that we only received the MM figures because of last year’s government shutdown. Headline MM came in at 0.4%, beating the 0.3% forecast, though below September's 0.6%. Core MM also came in at 0.3%, slightly higher than the 0.2% estimate and matching the prior month’s reading.
What the US CPI headline doesn’t tell you about inflation

Brent crude has fallen about a third since mid-October on hopes the Iran war is ending, but diesel, freight and fertiliser costs haven't followed. Those costs reach US consumer prices in stages through 2027 and could keep inflation high after gasoline gets cheaper.