- USD/CAD rises to near 1.3920 after the release of the Canadian labor market data.
- The Canadian jobless rate accelerated at a faster-than-expected pace to 6.9%.
- Investors await US-China trade talks scheduled over the weekend.
The USD/CAD pair moves higher to near 1.3920 in Friday’s North American session after the release of the Canadian labor market data for April. The data showed that the Unemployment Rate accelerated at a faster pace to 6.9% from estimates of 6.8% and the March reading of 6.7%, the highest level seen since October 2021.
Higher jobless rate has led the Loonie pair higher despite correction in the US Dollar (USD), suggesting significant weakness in the Canadian Dollar (CAD).
The Canadian economy added 7.4K fresh workers, higher than estimates of 2.5K. In March, the laborforce was reduced by 32.6K workers. Meanwhile, Average Hourly Wage, a key measure of wage growth, rose steadily by 3.5% year-on-year.
Rising jobless rate is expected to boost market expectations that the Bank of Canada (BoC) needs to resume its monetary-expansion cycle, which it paused in the policy meeting last month.
Meanwhile, the US Dollar corrects sharply as investors turn cautious ahead of the United States (US)-China trade talks. US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer have confirmed that they will meet their Chinese counterparts in Switzerland on Saturday, aiming to de-escalate the trade war.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, retreats from almost a month high of 100.85 posted earlier in the day to near 100.30, at the press time.
Ahead of the US-China meeting, President Donald Trump has signaled that tariffs on Beijing could be reduced to 80% through a post on Truth.Social. "80% Tariff on China seems right! It's up to Scott Bessent," Trump said.
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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