USD/CAD softens to near 1.4000 as job data reduces BoC rate cut bets

USD/CAD weakens to around 1.4000 in Monday’s early European session.
Canada added 60.4K jobs in September, stronger than expected.
Trump said the China situation “will all be fine,” easing fears of US-China trade tensions.

Lallalit Srijandorn FXStreet

The USD/CAD pair loses ground near 1.4000 during the early European session on Monday. The Canadian Dollar (CAD) edges higher against the US Dollar (USD) as the upbeat Canadian employment data reduced bets on another Bank of Canada (BoC) interest rate cut this month.

Data released by Statistics Canada on Friday showed that the Unemployment Rate in Canada held steady at 7.1% in September, better than the estimations of 7.2%. Meanwhile, Canada's economy added 60.4K jobs in September versus -65.5K prior. This figure came in above the consensus of 5K.

The BoC lowered its benchmark rate by 25 basis points (bps) last month to 2.50%, its first cut since March, supporting an economy buffeted by trade uncertainty. Investors see roughly 50% odds the Canadian central bank cuts interest rates at its next policy decision on October 29, down from 72% chance before the data.

Additionally, a rebound in crude oil prices could boost the commodity-linked Loonie and create a headwind for the pair. It’s worth noting that Canada is the largest oil exporter to the US, and higher crude oil prices tend to have a positive impact on the CAD value.

On the other hand, easing trade tensions between the US and China after US President Donald Trump said trade relations with China “will all be fine” could provide some support to the Greenback.

Trump said on Truth Social on Sunday that he may not follow through on his threat to post a “massive increase of tariffs” on China. Vice President JD Vance echoed those sentiments over the weekend, noting that the US will negotiate if Beijing is “willing to be reasonable,” though he added that the US has “far more cards” if not.

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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