USD/CAD edges lower below 1.4000 on softer US Dollar, eyes on US hard data

USD/CAD softens to around 1.3975 in Thursday’s early Asian session.
US April CPI inflation came in cooler than expected, weighing on the US Dollar.
Fed is expected to deliver gradual rate cuts starting later in the year.

Lallalit Srijandorn FXStreet

The USD/CAD pair loses ground to near 1.3975 during the early Asian session on Thursday, pressured by a weaker US Dollar (USD). The US Retail Sales and Producer Price Index (PPI) for April will be the highlights later on Thursday, along with the speech from the Fed’s Chair Jerome Powell.

Tamer-than-expected US April inflation weighs on the Greenback against the Canadian Dollar (CAD). The US Consumer Price Index (CPI) increased by 2.3% YoY in April, compared to a rise of 2.4% in March, according to the US Bureau of Labor Statistics (BLS) on Tuesday. This reading came in below the market expectation of 2.4% and registered the smallest year-over-year gain in more than four years.

However, signs of de-escalation of a US-China trade war and easing fears of recession in the United States have prompted traders to raise their bets that the Fed policymakers will deliver gradual rate cuts later in the year instead of taking earlier. This, in turn, could provide some support to the US Dollar. Markets have dialed back expectations for rate cuts from the Fed this year, pricing in a 74% odds for the first cut of at least 25 basis points (bps) at the September meeting, according to LSEG data, compared with the prior view for a cut in July.

Meanwhile, a decline in Crude Oil prices might drag the commodity-linked Loonie lower and create a tailwind for the pair. It’s worth noting that Canada is the largest oil exporter to the US, and lower crude oil prices tend to have a negative impact on the CAD value.

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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

AUD/USD falls to near 0.7100 after slipping below 50-day EMA

AUD/USD depreciates after registering minor gains in the previous day, trading around 0.7120 during the Asian hours. The technical analysis of the daily chart shows the pair consolidating sideways within a rectangle pattern, as neither bulls nor bears gain control. The AUD/USD pair is holding a slight bearish tone however as it sits beneath both the nine-day and 50-day EMAs.

Japanese Yen edges up but remains close to the 160.00 intervention threshold

The Japanese Yen edges up against the US Dollar on Friday, but the USD/JPY pair remains above 159.90 at the time of writing, unable to put a significant distance from the 160.00 level, considered the limit of tolerable JPY weakness for Japanese authorities.

Gold returns to the red, awaits US NFP

Gold price is looking to test the weekly lows, while in the red near $4,450 in the early European session on Friday. The precious metal remains vulnerable amid ongoing geopolitical turmoil. Traders will closely monitor the developments surrounding the US-Iran peace deal and the US May employment report later on Friday.

Indian Rupee jumps as RBI holds, but unveils measures to boost foreign inflows

The Reserve Bank of India held the Repo Rate at 5.25%, as widely expected, on Friday. But the central bank unveiled various measures to boost foreign inflows into the economy, lifting the Indian Rupee against the US Dollar.

Top 3 Price Prediction: Bitcoin eyes $60,000, Ethereum risks $1,750, XRP could test $1

Bitcoin, Ethereum, and Ripple prices edge lower on Friday, extending a steady decline of roughly 15% so far this week. Institutional outflows weigh on Bitcoin and Ethereum while XRP largely follows the broader market trend.

Recession on paper: What really moves the Canadian Loonie now?

Statistics Canada handed the headline writers a gift and the analysts a headache. Real GDP shrank 0.1% on an annualized basis in the first quarter, and with the fourth quarter of 2025 revised down to a 1.0% contraction, that is two negative quarters in a row, the textbook definition of a technical recession and Canada's first since the pandemic.