USD/CAD softens below 1.4050 as traders await US NFP data

USD/CAD weakens to near 1.4020 in Friday’s early Asian session.
The US weekly Initial Jobless Claims rose slightly last week.
Trump tariff threats could weigh on the Loonie and act as a tailwind for the pair.

Lallalit Srijandorn FXStreet

The USD/CAD pair trades in negative territory around 1.4020 during the early Asian session on Friday. The US Dollar (USD) remains under renewed selling pressure as traders prefer to wait on the sidelines ahead of the US and Canadian labor market reports, which are due later on Friday.

Data released by the US Department of Labor on Thursday showed that the US weekly Initial Jobless Claims for the week ending November 29 rose 9,000 to 224,000, compared to 215,000 (revised from 213,000) in the previous week. This reading came in above the market consensus of 215,000. The Greenback edges lower in an immediate reaction to the US jobless claims data.

The market might turn cautious ahead of the crucial US labor market data, including Nonfarm Payrolls (NFP) and the Unemployment Rate. The NFP is expected to increase by 200,000 jobs in November after rising by 12,000 in October, the lowest number since December 2020. Additionally, the Unemployment Rate is forecasted to rise to 4.2% in November from 4.1% in October.

On the Loonie front, the threat of US trade tariffs might dampen the outlook for Canada's export-dependent economy, which drags the Canadian Dollar (CAD) lower against the USD. "If the U.S. puts tariffs of upwards of 25% on Canada, the main adjustment that would take place would likely be through the currency," said Benjamin Reitzes, Canadian rates & macro strategist at BMO Capital Markets.

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 consolidates above 0.7200 as bulls await US CPI for Fed rate cues

AUD/USD is seen extending its consolidative price action above 0.7200 during the Asian session on Wednesday as traders await the release of US inflation figures later in the week. Meanwhile, rising RBA rate-hike bets act as a tailwind for the Aussie amid Yen-inspired US Dollar weakness. However, escalating US-Iran tensions and hawkish Fed expectations limit USD losses, capping the currency pair.

USD/JPY hangs near multi-month low, above 153.00 amid BoJ hike bets

USD/JPY attracts fresh sellers during the Asian session on Wednesday as the strong Reuters Tankan business survey adds to the case for continued BoJ policy normalisation and boosts the Japanese Yen. This, along with a broadly weaker US Dollar, keeps spot prices close to a nearly seven-month low set on Tuesday. However, geopolitical risks and Fed rate hike bets could support the USD and the currency pair ahead of the release of US inflation figures later this week.

Gold holds around $4,400, but for how long?

Gold (XAU/USD) remains on the back foot during American trading hours on Tuesday, even as the US Dollar (USD) remains on the defensive. Rising Oil prices and expectations of a Federal Reserve (Fed) rate hike weigh on the precious metal. At the time of writing, XAU/USD trades around $4,400 after reaching an intraday high near $4,443.

Bitcoin remains highly sensitive to macro signals amid changing derivatives narrative

Bitcoin’s (BTC) sensitivity to US economic data has become increasingly evident this year. As the market approaches several important data dumps this week, BTC traders are keenly aware of the significance just like their counterparts in TradFi. And just like the stock market, crypto traders are focused squarely on the US central bank's interest rate policy.

Gold and stocks: What eight midterm elections did

I went back through every midterm election since 1994 and asked one question of each: when did the stock market make its low for the year, before the vote or after it? In seven of the eight cycles, the low came before the election. In six of the eight, it came between mid-June and mid-October, which is to say in the exact window that the "they won't let it fall" argument says is protected.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.