Canadian Dollar rises on weaker US Dollar, rising oil prices
- Canadian Dollar advances amid higher crude oil prices and Middle East tensions.
- US Dollar faces pressure from a sharp Yen rally and slowing US private employment growth.
- Investors await weekly jobless claims and the August payrolls report for Federal Reserve rate guidance.
USD/CAD extends its losses for the second consecutive day, trading around 1.3830 during the Asian hours on Thursday. The currency pair experiences downward pressure as a sharp rally in the Japanese Yen (JPY) weighed heavily on the US Dollar (USD). This surge was fueled by growing market speculation that authorities conducted a rate check and may be preparing to intervene directly in foreign exchange markets to bolster the Yen.
Meanwhile, the Greenback faced additional headwinds following Wednesday's economic data, which revealed a slowdown in US private employment growth for August. Despite these weaker labor signals, financial markets continue to price in roughly a two-thirds probability that the Federal Reserve will raise interest rates later this month.
US private-sector job growth slowed in August, adding just 38K positions, missing the expected 47K and dropping below July’s revised 46K gain, according to ADP data. Market participants are now closely monitoring upcoming US economic indicators, focusing on Thursday’s weekly jobless claims and Friday’s comprehensive August payrolls report for clearer direction on the monetary policy path.
The USD/CAD pair moved lower as the commodity-sensitive Canadian Dollar (CAD) gained ground, supported by rising crude oil prices. The oil rally comes as investors evaluate escalating geopolitical tensions in the Middle East alongside ongoing efforts to secure and reopen the Strait of Hormuz. Broadening the market's focus, President Donald Trump stated that recent strikes on Iran would be short-lived, though he emphasized that the US stands ready for additional military action while reiterating assertions of US control over the vital trade strait.
USDCAD upside bias builds as Scotiabank flags key resistance break
Analysts at Scotiabank highlight that the recent advance in USDCAD has brought the pair up against a pivotal technical level, noting that “sustained USD gains through 1.3930 (38.2% retracement resistance from the July/August USD decline) target a push on the 1.40 zone.” This reinforces their view that spot is now trading above fair value, with price action increasingly skewed toward a test of the psychologically important 1.40 area if the current momentum is maintained.
Technical Analysis:
In the daily chart, USD/CAD trades at 1.3830, maintaining a bearish near-term bias as it holds below both the nine- and 50-period Exponential Moving Averages (EMAs). The short-term EMA sits under the longer one and both above spot, suggesting the recent rebound is capped by overhead supply, while the 14-day Relative Strength Index (RSI) near 41.2 keeps momentum subdued rather than oversold, hinting at persistent but measured selling pressure.
On the topside, immediate resistance emerges at the nine-period EMA near 1.3858, followed by the denser barrier at the 50-period EMA around 1.3941, before a more distant structural ceiling at 1.4248. On the downside, the next meaningful support is the horizontal level at 1.3482, where buyers would be expected to reappear if the pair extends its slide, leaving the path between current levels and that floor relatively open to further weakness.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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