- USD/CAD regains positive traction on Thursday and draws support from a combination of factors.
- Retreating Oil prices undermines the Loonie and acts as a tailwind amid reviving USD demand.
- Traders now look to the US monthly Retail Sales and Jobless Claims data for short-term impetus.
The USD/CAD pair builds on the overnight bounce from the 1.4300 mark, over a one-week low and gains strong follow-through positive traction on Thursday. The intraday move up remains unabated through the first half of the European session and lifts spot prices to a fresh daily high, around the 1.4385 region in the last hour.
Crude Oil prices drift lower amid some profit-taking following the recent sharp rise to the highest level since July 2024, which is seen undermining the commodity-linked Loonie. Apart from this, the emergence of some US Dollar (USD) dip-buying, bolstered by growing acceptance that the Federal Reserve (Fed) will pause its rate-cutting cycle later this month, turn out to be a key factors acting as a tailwind for the USD/CAD pair.
Meanwhile, the US Producer Price Index and Consumer Price Index (CPI), released on Tuesday and Wednesday, respectively, pointed to signs of abating inflationary pressures. This, in turn, suggests that the Fed may not necessarily exclude the possibility of cutting rates further by the end of this year, which led to the overnight sharp decline in the US Treasury bond yields and might keep a lid on any further USD move up.
Furthermore, easing fears about US President-elect Donald Trump's disruptive trade tariffs remains supportive of the upbeat market mood. This might further hold back the USD bulls from placing aggressive bets and cap gains for the USD/CAD pair. Traders now look to the US economic docket – featuring monthly Retail Sales, the usual Weekly Initial Jobless Claims and the Philly Fed Manufacturing Index – for a fresh impetus.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
Gold hovers around all-time highs near $3,250
Gold is holding steady near the $3,250 mark, fuelled by robust safe-haven demand, trade war concerns, and a softer-than-expected US inflation gauge. The US Dollar keeps trading with heavy losses around three-year lows.
EUR/USD retreats towards 1.1300 as Wall Street shrugs off trade war headlines
The EUR/USD pair retreated further from its recent multi-month peak at 1.1473 and trades around the 1.1300 mark. Wall Street manages to advance ahead of the weekly close, despite escalating tensions between Washington and Beijing and mounting fears of a US recession. Profit-taking ahead of the close also weighs on the pair.
GBP/USD trims gains, recedes to the 1.3050 zone
GBP/USD now gives away part of the earlier advance to fresh highs near 1.3150. Meanwhile, the US Dollar remains offered amid escalating China-US trade tensions, recession fears in the US, and softer-than-expected US Producer Price data.
Bitcoin, Ethereum, Dogecoin and Cardano stabilze – Why crypto is in limbo
Bitcoin, Ethereum, Dogecoin and Cardano stabilize on Friday as crypto market capitalization steadies around $2.69 trillion. Crypto traders are recovering from the swing in token prices and the Monday bloodbath.
Is a recession looming?
Wall Street skyrockets after Trump announces tariff delay. But gains remain limited as Trade War with China continues. Recession odds have eased, but investors remain fearful. The worst may not be over, deeper market wounds still possible.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.