USD/CAD holds steady amid softer US Dollar and trade uncertainty
- USD/CAD trades flat as a softer US Dollar caps upside.
- The US Dollar stays under pressure after the NFP report, as heavy downward revisions and weak underlying hiring trends overshadow the 130K headline gain.
- Trade uncertainty lingers after the United States House of Representatives voted to advance a measure to end Donald Trump’s Canada tariffs.
The Canadian Dollar (CAD) trades little changed against the US Dollar (USD) on Thursday, as growing uncertainty around North American trade ties keeps investors cautious. At the time of writing, USD/CAD is hovering near 1.3571, with a broadly softer Greenback limiting upside in the pair.
US economic data released earlier in the day showed that Initial Jobless Claims fell to 227K from 232K, but still came in above expectations of 222K. At the same time, Continuing Jobless Claims edged up to 1.862M from 1.841M.
The Greenback failed to gain lasting support from Wednesday’s stronger-than-expected Nonfarm Payrolls (NFP) report, as downward revisions and a softer underlying trend tempered the initial optimism. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is trading around 96.85, hovering close to two-week lows.
The US economy added 130K jobs in January, well above market expectations of 70K. Payrolls for November and December were revised lower by a combined 17K.
More importantly, the Bureau of Labor Statistics (BLS) said that average monthly job growth in 2025 stood at just 15K. The seasonally adjusted level of total nonfarm employment for March 2025 was revised down by 898,000, and total job growth for 2025 was cut to 181,000 from 584,000 previously.
Attention now turns to the US Consumer Price Index (CPI) report due on Friday. A firmer-than-expected reading would reinforce the case for the Federal Reserve (Fed) to remain patient before resuming rate cuts, especially after recent data pointed to some stabilisation in labour-market conditions.
On the other side, the Loonie came under brief pressure after reports that Donald Trump is privately considering withdrawing from the US-Mexico-Canada Agreement (USMCA). Trump’s trade adviser Peter Navarro said on Thursday that Mexico and Canada are being used as staging areas for China.
The United States House of Representatives voted 219-211 on Wednesday to advance a resolution seeking to end Donald Trump’s tariffs on Canada, signalling growing unease over his economic agenda ahead of the midterm elections and adding a fresh layer of domestic political risk to US-Canada trade relations.
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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