- USD/CAD could face downside pressure as the US Dollar weakens, possibly due to rising trade tensions.
- President Donald Trump’s proposal to impose a 100% tariff on foreign-made films has heightened fears of renewed protectionist policies.
- The Canadian Dollar is rebounding in line with other G10 currencies, supported by fading recession concerns.
USD/CAD is holding steady around the 1.3800 level during Monday’s Asian session, following a decline in the previous trading day. Upside momentum for the pair may be capped as the US Dollar (USD) faces pressure, potentially due to renewed trade tensions. President Donald Trump announced plans to instruct the US Trade Representative and Commerce Department to initiate a 100% tariff on foreign-made films.
The US Dollar Index (DXY), which tracks the Greenback against six major currencies, is on the back foot for the second straight day, trading near 99.70 at the time of writing. Market participants will turn their focus to the upcoming US ISM Services PMI data for further clues on the economic outlook.
President Trump confirmed he has no intention of replacing Federal Reserve Chair Jerome Powell before his term expires in May 2026. Despite calling Powell “a total stiff,” Trump reiterated his view that interest rates should eventually be cut.
On the labor front, the April Nonfarm Payrolls (NFP) report surprised to the upside, with 177,000 jobs added versus expectations of 130,000. This followed a revised increase of 185,000 in March. The unemployment rate held steady at 4.2%, while average hourly earnings grew 3.8% year-over-year, in line with the previous month.
Meanwhile, the Canadian Dollar (CAD) found support alongside other G10 currencies amid easing recession concerns. Canada’s GDP showed modest growth in March, despite falling commodity prices and fears surrounding a potential trade dispute with the US. The resilience in economic data has helped bolster sentiment toward the CAD.
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.