USD/CAD extends downside to near 1.4300, all eyes on the US NFP release

USD/CAD weakens to around 1.4300 in Thursday’s late American session.
Trump delayed the tariffs until April 2 for goods covered by the USMCA.
The US Initial Jobless Claims fell below consensus to 221K last week.

Lallalit Srijandorn FXStreet

The USD/CAD pair extends the decline to near 1.4300 during the late American session on Thursday. The weakening of the US Dollar (USD) is fuelled by concerns over the US economy and some renewed hopes that US President Donald Trump could delay some planned tariffs. All eyes will be on the US February Nonfarm Payrolls (NFP) report, which is due later on Friday.

Trump exempted Mexican and Canadian goods covered by the North American trade agreement known as USMCA from his 25% tariffs, providing significant relief to the United States' two main trading partners. This, in turn, provides some support to the Canadian Dollar (CAD) and creates a headwind for USD/CAD.

"The narrative has shifted on tariffs, which are now viewed as a hindrance to economic growth," said Eugene Epstein, head of trading and structured products, North America, at Moneycorp in New Jersey.

US economic data on Thursday was mixed, providing more evidence of a looming slowdown. US Initial Jobless Claims for the week ending March 1 dropped to 221K, compared to 242K in the previous week, according to the US Department of Labor (DOL) on Thursday. This figure came in below the market consensus of 235K. Continuing Jobless Claims for the week ending February 22 went up by 42K to reach 1.897M versus 1.855M (revised from 1.862M) prior.

The US NFP report for February will be the highlight on Friday. Economists predict that 160,000 jobs will be added and the unemployment rate will hold steady at 4.0%. Average Hourly Earnings are expected to rise by 0.3% compared to the previous month. In case of the stronger-than-expected outcome, this could boost the Greenback against the CAD in the near term.

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.

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