USD/CAD under pressure as Canada PMI improves, US data disappoints

The Canadian Dollar rises for a third straight session, supported by higher oil prices and a weaker US Dollar.
Canada’s manufacturing PMI improves slightly to 46.1 in May, while US factory activity shows deeper contraction.
Investors price in a 75% chance that the Bank of Canada will hold rates at 2.75% on Wednesday, with market focus shifting to inflation risks.

Vishal Chaturvedi FXStreet

The Canadian Dollar (CAD) extends its winning streak against the US Dollar (USD) for a third consecutive day on Monday, supported by rising oil prices and sustained weakness in the Greenback.

The latest PMI figures offered additional support to the Loonie, with Canada’s factory activity showing a slight improvement, though it remained in contraction. On the other side, mixed US manufacturing data weighed on the US Dollar, keeping the USD/CAD pair on the defensive below the 1.3700 mark. At the time of writing, the pair is trading near 1.3698 during the North American session.

The S&P Global Canada Manufacturing PMI rose to 46.1 in May from 45.3 in April, indicating the sector remains in contraction for a fourth consecutive month. Output and new orders continued to fall sharply. Meanwhile, the US ISM Manufacturing PMI dropped to 48.5 in May from 48.7, falling short of market expectations and marking the sharpest contraction since November 2024. The data highlighted persistent economic uncertainty and sustained cost pressures, partly driven by the US President Donald Trump administration's volatile trade policies.

Looking ahead, the Bank of Canada (BoC) is set to announce its interest rate decision on Wednesday. While markets previously leaned toward a rate cut, stronger-than-expected Q1 GDP growth of 2.2% has shifted the consensus toward holding the current 2.75% policy rate. According to Reuters, investors now see around a 75% chance that the BoC will leave rates unchanged.

Scotiabank’s Derek Holt has pushed back firmly against easing in a post titled “No way the BoC should be cutting any time soon, if at all.” He pointed to persistently elevated core inflation, even before the full effects of tariff-related supply shocks take hold. “Despite modest slack, other forces are keeping core inflation at sticky, elevated levels,” he noted.

Economic Indicator

BoC Interest Rate Decision

The Bank of Canada (BoC) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoC believes inflation will be above target (hawkish), it will raise interest rates in order to bring it down. This is bullish for the CAD since higher interest rates attract greater inflows of foreign capital. Likewise, if the BoC sees inflation falling below target (dovish) it will lower interest rates in order to give the Canadian economy a boost in the hope inflation will rise back up. This is bearish for CAD since it detracts from foreign capital flowing into the country.

GBP/USD extends the drop to 1.3360

GBP/USD builds on Monday’s decline and briefly clinches five-day lows near 1.3360 on Tuesday. Cable’s extra pullback follows the better tone in the Greenback as uncertainty in the Middle East prompts investors to adopt a cautious stance. Meanwhile, an apathetic UK labour market report also collaborates with the selling pressure on the British Pound.

EUR/USD looks inconclusive near 1.1420

EUR/USD trades in a tight range in the low 1.1400s on Tuesday, struggling to gain momentum amid an equally absence of clear direction in the US Dollar (USD). Uncertainty surrounding the US-Iran conflict is capping the pair’s upside, while traders avoid taking significant positions ahead of Thursday’s ECB gathering.

Gold shows signs of life; focus is back to $4,100

Gold gains ground on Tuesday, reversing Monday’s pessimism and advancing toward the $4,100 mark per troy ounce. Nevertheless, uncertainty surrounding the Middle East conflict and rising expectations for a hawkish Fed policy outlook are expected to limit the precious metal’s bullish momentum in the near term.

XRP extends recovery as on-chain activity grows

Ripple (XRP) ticks up and trades around $1.13 at the time of writing on Tuesday. This rebound aligns with a broader recovery in the cryptocurrency market, attributed to reports that mediators between the United States (US) and Iran are seeking a 10-day cessation of strikes to find a way back to the signed Memorandum of Understanding (MoU).

The Iranian war has again risen

The Iranian war has again risen to the top of the economics factor list. There is no end in sight. Intelligence experts say the current level of offense/retaliation will not change minds in Tehran, while in Washington, Trump fears all-out war, which would mean boots on the ground.

US Dollar mid-year outlook: Exceptional currency, exceptional risks?

The US Dollar enters the second half of 2026 in a markedly different position from a year ago. The King currency has recovered, reflecting persistent US inflation, changing expectations for Fed policy, geopolitical tensions and renewed demand for defensive assets.