USD/CAD weakens as BoC holds rates, US data disappoints

USD/CAD trades below 1.3700 after the Bank of Canada leaves rates unchanged at 2.75%.
The Canadian Dollar is supported by the BoC’s cautious stance and strong Q1 growth.
The US Dollar weakens as ADP jobs data and ISM Services PMI fall short of expectations

Vishal Chaturvedi FXStreet

The Canadian Dollar (CAD) extends its advance against the US Dollar (USD) on Wednesday after the Bank of Canada (BoC) held interest rates steady, aligning with market expectations. Meanwhile, the US Dollar weakens across the board following a sharp miss in the ADP Employment Change and a softer ISM Services PMI. The combination of domestic policy stability and disappointing US data is helping USD/CAD strengthen below the key 1.3700 psychological level, keeping the pair under bearish pressure.

At the time of writing, USD/CAD is trading lower at around 1.3668 during the American session, marking its lowest level since October 2024. This follows a modest gain on Tuesday, but bullish momentum faded as sellers stepped back in amid broad-based USD weakness.

The US Dollar Index (DXY) is edging lower from its intraday high of 99.39, paring most of the previous day’s gains, trading around 98.70. The latest ADP report showed that US private sector employment rose by just 37,000 in May, well below the expected 115,000, signaling a sharp slowdown in hiring. Meanwhile, the ISM Services PMI fell to 49.9 in May, missing the 52.0 forecast and down from April’s 51.6.

The Bank of Canada left its policy rate unchanged at 2.75% on Wednesday, aligning with market expectations, citing persistent inflationary pressures and ongoing uncertainty stemming from US trade policies. Governor Tiff Macklem flagged the ongoing trade conflict with the United States as the most significant headwind for the Canadian economy, calling US policy moves “highly unpredictable.” While the central bank opted to stay on hold for now, Macklem warned that further rate cuts could be necessary if economic conditions deteriorate under the weight of escalating tariffs.

In its monetary policy statement, the BoC highlighted that first-quarter GDP growth exceeded expectations, driven by a surge in exports and inventory accumulation ahead of impending US tariffs. However, the central bank anticipates a significant slowdown in the second quarter, with domestic demand remaining subdued and trade-sensitive sectors experiencing labor market weaknesses. Inflation dynamics also influenced the BoC's decision. While headline inflation eased to 1.7% in April, core inflation measures rose to 3.15%, the fastest pace in nearly a year, driven by supply chain disruptions resulting from US tariff policy.

Looking ahead, the BoC maintains a cautious stance, signaling that rate cuts could be considered if economic conditions weaken further. The central bank is closely watching the impact of trade tensions and slowing demand on growth and inflation.

Bank of Canada FAQs

What is the Bank of Canada and how does it influence the Canadian Dollar?

The Bank of Canada (BoC), based in Ottawa, is the institution that sets interest rates and manages monetary policy for Canada. It does so at eight scheduled meetings a year and ad hoc emergency meetings that are held as required. The BoC primary mandate is to maintain price stability, which means keeping inflation at between 1-3%. Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Canadian Dollar (CAD) and vice versa. Other tools used include quantitative easing and tightening.

What is Quantitative Easing (QE) and how does it affect the Canadian Dollar?

In extreme situations, the Bank of Canada can enact a policy tool called Quantitative Easing. QE is the process by which the BoC prints Canadian Dollars for the purpose of buying assets – usually government or corporate bonds – from financial institutions. QE usually results in a weaker CAD. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The Bank of Canada used the measure during the Great Financial Crisis of 2009-11 when credit froze after banks lost faith in each other’s ability to repay debts.

What is Quantitative tightening (QT) and how does it affect the Canadian Dollar?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Bank of Canada purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the BoC stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Canadian Dollar.

Author

Vishal Chaturvedi

FXStreet

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

AUD/USD consolidates above 0.7000; remains close to monthly top

AUD/USD holds steady above 0.7000 during the Asian session on Friday, trading just below the previous day's monthly low amid diverging forces. A hawkish RBA continues to support the Aussie, while the recent decline in US bond yields keeps the US Dollar depressed near a three-week low. However, oil-driven inflation fears reinforce Fed hike bets, which, along with geopolitical risks, could benefit the safe-haven buck and cap the currency pair.

USD/JPY drops to an over one-month low, around 156.00 after Japan's CPI report

USD/JPY attracts heavy follow-through selling on Friday, dropping to the 156.00 neighborhood, a one-month low, as Japan's National CPI report reaffirms bets for an imminent BoJ rate hike and boosts the Japanese Yen. Moreover, the recent steep fall in US bond yields counters hawkish Fed expectations and geopolitical risks, undermining the US Dollar and exerting additional pressure on the currency pair.

Gold seems vulnerable near August lows; eyes $4,000 break amid Fed hike bets

Gold touches a fresh low since early August during the Asian session on Friday, eyeing the key $4,000 psychological mark. Oil-driven inflation fears reinforce December Fed hike bets and continue to undermine the non-yielding bullion, which fails to benefit from the recent steep fall in US bond yields and the prevailing US Dollar selling bias. Moreover, the overnight breakdown below a trading-range support backs the case for further depreciation.

Bitcoin falls 4% as chip stocks plunge 6.7% and oil surges

Bitcoin (BTC) fell below $82,000 on Thursday as the crypto market joined a broader market sell-off driven by concerns over artificial intelligence (AI) spending, rising oil prices and escalating geopolitical tensions involving the US and Iran. The top crypto fell 4% to $81,130 as macro fears weighed on prices across the digital asset market.

The Bank of England just got its clearest reason to hike. Here's what it's really watching

UK inflation as measured by the CPI accelerated to 3.5% YoY in September, up from 3.1% in August, according to the Office for National Statistics. This is the highest level since October 2025, exceeding economists' expectations of 3.4% and pushing inflation further from the BoE's 2% target.

What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.