Canadian Dollar steadies despite lower oil prices

USD/CAD may weaken as the US Dollar struggles amid fading risk aversion.
US Vice President JD Vance stated that President Trump may release the preliminary US-Iran peace agreement ahead of schedule.
The commodity-linked Canadian Dollar faces potential challenges as sliding oil prices weigh heavily on the resource-reliant currency.

Akhtar Faruqui FXStreet

USD/CAD halts its four-day winning streak, trading around 1.3990 during the Asian hours on Wednesday. The US Dollar (USD) experiences downward pressure as easing risk aversion weighs on the currency, a shift largely driven by growing expectations of a breakthrough peace deal between the United States (US) and Iran.

Momentum toward an agreement has accelerated, with US Vice President JD Vance stating on Tuesday that President Donald Trump may release a preliminary agreement to end the war ahead of schedule, following the president's earlier comments that the framework had already been signed. Simultaneously, Iranian Foreign Minister Seyed Abbas Araghchi confirmed that a new round of negotiations aimed at reaching a final, comprehensive peace deal is set to begin in Switzerland.

Meanwhile, global market attention is shifting heavily toward Wednesday's pivotal Federal Reserve (Fed) policy meeting. The US central bank is widely expected to maintain a cautious "wait-and-see" approach, keeping its benchmark interest rate unchanged within the 3.50% to 3.75% range. Investors and traders will be closely monitoring the post-meeting press conference, seeking crucial insights into how newly appointed Fed Chair Kevin Warsh intends to guide monetary policy into this next era.

However, the downside of the USD/CAD pair could be restrained as the commodity-linked Canadian Dollar (CAD) could face challenges amid lower oil prices. It is important to note that lower oil prices put downward pressure on the CAD, as Canada is the largest crude exporter.

Crude oil prices declined as anticipation grew over a looming United States (US)-Iran peace deal that could significantly boost global supply. The two nations are scheduled to sign an interim agreement in Switzerland this Friday, which would grant Tehran broad economic incentives and allow the immediate resumption of Iranian oil exports. Furthermore, international tankers are expected to resume safe transit through the strategic Strait of Hormuz once the pact officially takes effect.

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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

AUD/USD stays defensive below 0.7150 after Chinese data

AUD/USD remains on the back foot below 0.7150 in the Asian session on Tuesday, close to an over three-week low touched the previous day. US bond yields hold near multi-year highs ahead of the FOMC meeting and oil-driven inflation risks, supporting the US Dollar and weighing on the currency pair. Mixed Chinese activity data for August also fail to inspire the Aussie.

USD/JPY extends gains toward 155.00 amid USD resurgence

USD/JPY keeps pushing higher toward 155.00 early Tuesday, looking for more upside, as traders await the FOMC and BoJ meetings this week. Meanwhile, Fed rate-hike bets and oil-driven inflation risks keep US bond yields near multi-year highs, supporting the US Dollar and the pair. That said, a more hawkish repricing of the BoJ normalization path might continue to underpin the Japanese Yen and could limit USD/JPY's upside. .

Gold struggles near multi‑week low as Fed hike bets and geopolitical risks boost USD

Gold drifts lower for the second straight day, and trades around the $4,265-$4,264 region, down 0.80% during the first half of the European session on Tuesday. The commodity remains within striking distance of an over one-month low, which it touched on Monday, as traders keenly await the crucial two-day FOMC policy meeting, starting later today.

Dogecoin clings to EMA support as recovery lacks conviction

Dogecoin (DOGE) hovers around $0.083 at the time of writing on Tuesday after finding support around the key support zone the previous day. Quiet institutional demand, along with mixed derivatives positioning, suggests fading interest in the dog-themed meme coin.

Markets slide as FOMC approaches

The US Dollar remains strong as markets turn increasingly cautious ahead of the FOMC. Stocks are tumbling, while Gold and Silver are moving lower under pressure from the stronger Dollar. The Japanese Yen is weaker again, while Crypto is correcting. BTC is approaching a key technical test and could fall below its 50-week moving average, while ETH remains above $2,405.

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.