USD/CAD stalls below 1.3700 wth FOMC’s meeting minutes in focus
- USD/CAD rebounds from 1.3640 stalls below 1.3700.
- A moderate uptick in Oil prices has provided some support to the Loonie.
- Investors are awaiting the release of the Fed's meeting minutes, due later on Tuesday.
The US Dollar picked up from five-month lows near 1.3640 against the Canadian Dollar last week, but upside attempts remain capped below 1.3700. The pair posts marginal losses on Tuesday, with the Loonie supported by a moderate appreciation in Oil prices as the market’s focus turns to the release of the minutes of the US Federal Reserve’s (Fed) latest monetary policy meeting.
The Fed cut rates by 25 basis points in December and hinted at another rate cut in 2026. The minutes of the meeting, however, are likely to reflect a wide divergence among committee members, which feeds market expectations of a deeper easing cycle in 2026.
Beyond that, US President Trump is about to nominate ChairmanJerome Powell's successor, whose term ends in May, and Trump has set the support for radically lower rate cuts as a sine qua non for the next Fed chief.
Looking from a wider perspective, the US Dollar (USD) has been one of the weakest performers among major currencies in 2025. The Greenback is set to close the year about 20% lower against the Canadian Dollar, hammered by a softening economic outlook, President Trump’s erratic trade policies, and, lately, also by Fed-BoC monetary policy divergence.
On Tuesday, the Canadian Dollar is drawing some support from the moderate uptick in Oil prices, Canada’s main export. The fading hopes of an upcoming peace agreement in Russia and the escalating tensions with Iran are likely to maintain sanctions on two of the world’s major Crude exporters, unchanged, which has eased concerns of an overproduction in 2026.
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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