USD/CAD sticks to modest gains above 1.3800 mark, lacks bullish conviction

USD/CAD regains positive traction amid the emergence of some USD dip-buying.
The Fed’s dovish stance drags the US bond yields lower and should cap the USD.
A positive risk tone and the overnight rally in Oil prices warrant caution for bulls.

Haresh Menghani FXStreet

The USD/CAD pair attracts some dip-buyers on Thursday and moves away from a one-week trough, around the 1.3785 region touched the previous day. Spot prices currently trade around the 1.3815-1.3820 zone and seem to draw support from a goodish pickup in the US Dollar (USD) demand.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, rebounds from the vicinity of a three-week low touched in the aftermath of the FOMC policy decision on Wednesday. The upside for the USD, however, seems limited in the wake of the Federal Reserve's (Fed) dovish outlook, signaling the likelihood of an early rate cut if inflation stays in line with expectations.

In fact, the US central bank acknowledged the recent progress on inflation and cooling in the labor market, opening the door for an imminent start of the rate-cutting cycle in September. This, in turn, drags the US Treasury bond yields to a multi-month low, which, along with a generally positive risk tone should cap gains for the safe-haven buck and act as a headwind for the USD/CAD pair.

Meanwhile, Crude Oil prices consolidate the previous day's strong gains amid the risk of a further escalation of tensions in the Middle East, which continues to fuel worries about supply disruptions from the key Oil producing region. This, in turn, could underpin the commodity-linked Loonie and contribute to capping the upside for the USD/CAD pair, warranting some caution for bullish traders.

There isn't any relevant market-moving economic data due for release on Thursday, either from the US or Canada, leaving spot prices at the mercy of the USD and Oil price dynamics. The focus, meanwhile, remains glued to the closely-watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report, due on Friday.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD eyes 1.1800 barrier near two-month highs

EUR/USD extends its gains for the second consecutive day on Tuesday and approaches 1.1800. On the daily chart, technical analysis indicates a persistent bullish bias, as the pair moves upward within the ascending channel pattern. Additionally, the 14-day Relative Strength Index at 68.89 reaffirms the bullish bias.

GBP/USD climbs to 1.3500 area, renews ten-week high

GBP/USD extends its weekly rally and trades at its highest level since early October near 1.3500. The US Dollar remains under persistent bearish pressure heading into the holidays, while Pound traders largely brush off the latest interest rate cut from the Bank of England.

Gold approaches $4,500 as record-setting rally continues

Gold builds on Monday's impressive gains and advances toward $4,500, setting fresh record-highs along the way. Heightened geopolitical tensions, combined with the broad-based US Dollar (USD) weakness ahead of the Q3 GDP data, help XAU/USD preserve its bullish momentum.

US GDP expected to highlight steady growth in Q3

The United States Bureau of Economic Analysis (BEA) will publish the first preliminary estimate of the third-quarter Gross Domestic Product on Tuesday, at 13:30 GMT. Analysts expect the data to show annualized growth of 3.2%, following the 3.8% expansion in the previous quarter.

Ten questions that matter going into 2026

2026 may be less about a neat “base case” and more about a regime shift—the market can reprice what matters most (growth, inflation, fiscal, geopolitics, concentration). The biggest trap is false comfort: the same trades can look defensive… right up until they become crowded.

XRP steadies above $1.90 support as fund inflows and retail demand rise

Ripple (XRP) is stable above support at $1.90 at the time of writing on Monday, after several attempts to break above the $2.00 hurdle failed to materialize last week. Meanwhile, institutional interest in the cross-border remittance token has remained steady.