Canadian Dollar declines as Trump remarks lift US Dollar
- USD/CAD rises as the US Dollar strengthens after Trump’s remarks lacked clear Middle East de-escalation.
- Trump reiterated that Iran’s military capabilities were significantly weakened, signaling an end to the conflict.
- The Canadian Dollar may gain support as oil prices rise following Trump’s comments, boosting energy market sentiment.
USD/CAD rebounds after two days of losses, trading around 1.3900 during the Asian hours on Thursday. The pair appreciates as the US Dollar (USD) strengthens after US President Donald Trump’s latest address showed no clear Middle East de-escalation, keeping geopolitical risk elevated.
US President Donald Trump reiterated that Iran’s military capabilities have been significantly weakened, noting that its missile and drone capacity has been curtailed. Trump added that the US no longer relies on Middle Eastern oil. He emphasized that Iran’s naval and air forces have been severely diminished, with leadership losses further reducing its operational strength, while signaling that the US intends to conclude the conflict swiftly within 2-3 weeks.
The Greenback struggled as markets reassessed the US Federal Reserve’s (Fed) policy outlook amid shifting geopolitical risks, growth concerns, and persistent inflation pressures. The Fed kept interest rates unchanged at 3.50%–3.75% following its March 17–18, 2026 meeting. Nevertheless, the median dot plot still points to one 25-basis-point rate cut later in 2026, although some policymakers now anticipate no cuts this year.
Meanwhile, US Treasury yields are recovering, with both 2-year and 10-year notes extending gains after strong economic data reinforced expectations that rates could remain steady for longer. St. Louis Fed President Alberto Musalem noted that current monetary policy is appropriately positioned and likely to remain unchanged for some time.
However, the upside of the USD/CAD pair could be restrained as the Canadian Dollar (CAD) could receive support from higher oil prices, given the fact that Canada is the largest crude exporter to the United States (US).
West Texas Intermediate (WTI) oil price gains nearly 5% after two days of losses, trading around $98.90 per barrel at the time of writing. Crude oil prices rise as Trump’s latest remarks lack fresh signals on Iran, prompting cautious sentiment across energy markets.
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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