- USD/CAD finds support as the US Dollar strengthens on renewed optimism over US-China trade progress.
- US labor market data hit its lowest level since September 2024, pointing to weakening job demand amid growing economic uncertainty.
- The Canadian Dollar stays subdued as markets assess the impact of a narrow Liberal minority government victory.
USD/CAD is holding gains for a second consecutive session, trading near 1.3840 during Wednesday’s Asian session. The pair remains supported as the US Dollar (USD) benefits from renewed optimism surrounding US-China trade developments. Market focus now shifts to the release of the US Core Personal Consumption Expenditures (PCE) Price Index for March and Canada’s GDP data for February, both due later in the day.
Contributing to the upbeat sentiment, US President Donald Trump expressed a willingness to reduce tariffs on Chinese goods, while China announced exemptions for certain US imports from its 125% tariff list. These developments have sparked hopes that the prolonged trade dispute between the world’s two largest economies may be nearing resolution.
Meanwhile, US labor data on Tuesday suggested some weakness, with the Job Openings and Labor Turnover Survey (JOLTS) showing a decline to 7.19 million in March, down from a revised 7.48 million in February and below the market expectation of 7.5 million. This marks the lowest level since September 2024, signaling cooling labor demand amid rising economic uncertainty.
The Canadian Dollar (CAD) remains under pressure as investors digest the implications of a narrow Liberal minority victory. Prime Minister Mark Carney will now need to seek coalition support to govern, potentially leading to targeted fiscal spending commitments.
Meanwhile, the Bank of Canada’s (BoC) decision to keep its benchmark interest rate unchanged at 2.75%—citing sticky core inflation and the dual risk of a US-led recession or economic stagnation if tariffs are lifted—has dampened expectations for any imminent rate cuts.
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.
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