Canadian Dollar steadies as oil gains, trade tensions cap upside
- The Canadian Dollar is under pressure for the third straight day as the US Dollar firms on trade optimism.
- Crude Oil prices edge higher after Trump threatens to slash Putin’s ceasefire deadline from 50 to 10-12 days.
- Canada could face tariffs of up to 35% on its exports if a US-Canada agreement is not reached by August 1.
The Canadian Dollar (CAD) remains under pressure on Monday, as the week began with the US Dollar (USD) regaining ground amid improving global trade sentiment. The Greenback is drawing fresh support from easing tensions between the United States (US) and the European Union (EU), following the agreement between both sides on a new trade framework that has lifted broader market confidence. While the deal has boosted overall market mood, the Loonie remains under pressure as the US and Canada have yet to reach a trade agreement ahead of the August 1 deadline.
At the time of writing, the USD/CAD pair is holding steady near 1.3714 during the American trading session, up around 0.10% on the day. The US Dollar Index (DXY) is edging higher, hovering around 98.30, its highest level in nearly a week, supported by improving trade sentiment. Meanwhile, Crude Oil prices are edging higher after US President Donald Trump escalated pressure on Moscow and threatened to shorten the 50-day deadline he gave Russian President Vladimir Putin to agree to a ceasefire deal with Ukraine, offering some modest support to the oil-linked Canadian Dollar.
On 14 July, during an Oval Office meeting with NATO chief Mark Rutte, Trump promised severe tariffs on Russia's trading partners if Putin didn't reach a deal with Ukraine. The US president stated that he would impose 100% secondary tariffs if no deal were reached within 50 days. However, during a joint press appearance on Monday with UK Prime Minister Keir Starmer at Trump’s Turnberry estate in Scotland, the US President struck a more urgent tone. Expressing frustration over the lack of progress, Trump declared, “There’s no reason in waiting. I’m very disappointed in President Putin — I’m reducing the 50 days I gave him to 10 or 12.”
On the trade front, Canada remains under the threat of 35% tariffs on exports if an agreement isn’t reached by the August 1 deadline, with Commerce Secretary Howard Lutnick reaffirming over the weekend that the deadline is set in stone, “no extensions, no more grace periods.” On Friday, President Trump maintained a firm tone on Canada, “I haven’t had a lot of luck with Canada,” he added, saying that he may impose a unilateral tariff rate without further negotiation. “There’s not a lot of negotiating, and I’m not focused on a deal with Canada."
On the Canadian side, Prime Minister Mark Carney and Trade Minister Dominic LeBlanc have downplayed the likelihood of a last-minute breakthrough, signaling that Ottawa would rather walk away than sign a rushed or unfavorable agreement. Canadian officials have also raised concerns that even a deal may not prevent the U.S. from applying selective tariffs under national security clauses.
Looking ahead, both the Federal Reserve (Fed) and the Bank of Canada (BoC) will announce monetary policy decisions on Wednesday. Markets expect both central banks to hold rates steady, with focus shifting to forward guidance amid sticky inflation and ongoing trade tensions.
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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