USD/CAD extends gains above 1.3850 as concerns over Canadian Oil demand persist
- USD/CAD strengthens as commodity-linked Canadian Dollar struggles amid rising concerns about Canadian Oil demand.
- Canada’s PM Mark Carney said Canadian crude would remain low risk and competitive even amid a rise in Venezuelan exports.
- The US Dollar stays steady as fragile data ahead of Friday’s jobs report keeps sentiment cautious.
USD/CAD continues its winning streak for the fifth consecutive day, trading around 1.3860 during the Asian hours on Thursday. The pair appreciates as the commodity-linked Canadian Dollar (CAD) faces challenges after US President Donald Trump signaled efforts to re-establish Venezuelan crude imports, raising concerns about added supply and heightened competition for Canadian Oil demand.
However, Prime Minister Mark Carney said Canadian crude remains low risk and competitive even if Venezuelan exports rise. His office said Carney will visit China from January 13–17 as he seeks to diversify Canada’s exports away from the United States amid uncertainty over US trade policy.
Canada’s seasonally adjusted Ivey Purchasing Managers’ Index (PMI) climbed to 51.9 in December 2025 from 48.4 in November, surpassing expectations of 49.5 and signaling a return to expansion after one month of contraction. Canada's Trade Balance data for October is due on Thursday.
The US Dollar (USD) remains steady as data points to a fragile US economic backdrop ahead of Friday’s crucial jobs report, tempering market sentiment. US Nonfarm Payrolls (NFP) is expected to show job gains of 55,000 in December, down from 64,000 in November.
The Institute for Supply Management (ISM) reported on Wednesday that the US Services PMI rose to 54.4 in December from 52.6 in November. This figure came in stronger than the expectation of 52.3. The Automatic Data Processing (ADP) Employment Change showed an increase of 41,000 jobs in December, following a revised decline of 29,000 in November. The figure comes in slightly below market expectations of 47,000.
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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