USD/CAD holds gains above 1.4000 as US government shutdown nears end
- USD/CAD appreciates as the US Dollar gains on optimism of ending the US government shutdown.
- Weaker-than-expected ADP employment data have strengthened expectations for Fed policy easing.
- The Canadian Dollar rose amid cautious sentiment on the BoC policy outlook.
USD/CAD edges higher after three days of losses, trading around 1.4010 during the Asian hours on Wednesday. The pair appreciates as the US Dollar (USD) gains support from the ongoing process to reopen the United States (US) government. Traders will likely observe the upcoming speeches from Federal Reserve (Fed) officials, including Christopher Waller, Raphael Bostic, and Stephen Miran, later in the day.
The US Senate completed its job and passed the bill that would end the government shutdown. The House will vote on the bill on Wednesday, sending it to US President Donald Trump for signature. That would reopen the government, sending paychecks and unleashing economic data releases.
US President Donald Trump, on Monday, backed a bipartisan deal to end the US government shutdown, signaling a likely reopening within days. Senate Majority Leader John Thune said he expects Trump to sign the bill once Congress passes it.
However, the Greenback faced challenges as weaker-than-expected Automatic Data Processing (ADP), on Tuesday, employment data reinforced expectations of policy easing. The CME FedWatch Tool shows markets pricing in a 68% chance of a 25-basis-point rate cut in December.
Private employers shed an average of 11,250 jobs per week on average in the four weeks ended October 25, compared with 14,250 previously. The report suggested the labor market slowed in the second half of October, compared with earlier in the month.
The USD/CAD pair faced challenges as the Canadian Dollar (CAD) advanced on increasing cautious sentiment surrounding the Bank of Canada (BoC) policy outlook, driven by last week’s stronger-than-expected labor market data.
Additionally, the commodity-linked CAD received support from higher crude prices, given the status of Canada is the largest Oil exporter to the United States (US). West Texas Intermediate (WTI) Oil price steadies after three days of gains, trading around $60.80 per barrel at the time of writing.
Organization of the Petroleum Exporting Countries and its allies, popularly known as OPEC+, is scheduled to publish its monthly market report later in the day, followed by the International Energy Agency’s annual energy outlook. Both reports are expected to provide insights into forecasts through 2026 amid persistent concerns about oversupply.
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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