Canadian Dollar rises as US Dollar holds losses ahead of US NFP data
- USD/CAD declines as traders brace for Friday's crucial June US jobs report.
- Fed Chair Kevin Warsh avoided giving explicit guidance on the central bank's upcoming July interest rate decision.
- Falling oil prices create headwinds for the Canadian Dollar as global crude benchmarks slide due to easing supply anxieties.
USD/CAD has lost its recent gains from the previous day, trading around 1.4190 during the European hours on Thursday. Traders adopt a cautious stance ahead of the highly anticipated June Nonfarm Payrolls (NFP) report. Investors are looking to the labor data for fresh insights into economic health and to gauge the Federal Reserve’s (Fed) upcoming monetary policy path.
Fed Chairman Kevin Warsh at Wednesday's ECB Forum on Central Banking. Fed Chair Warsh opted not to provide explicit guidance regarding the central bank's upcoming July policy decision. While he acknowledged that inflation remains too elevated and reiterated a firm commitment to the Fed's 2% target and institutional independence, his overall tone was perceived as less hawkish than anticipated.
On Wednesday, the ADP Employment Change report showed private payrolls grew by just 98,000—missing Wall Street's 113,000 forecast and marking a slowdown from May's 122,000 increase. Further compounding growth concerns, the manufacturing sector showed signs of cooling as the ISM Manufacturing PMI edged lower to 53.3, missing the 54.0 consensus estimate.
The downside of the USD/CAD pair could be restricted as the commodity-linked Canadian Dollar (CAD) may face headwinds from falling oil prices. Global crude benchmarks have experienced a sharp downturn, sliding significantly below recent highs as supply anxieties begin to ease.
This energy market decline is primarily driven by a rapid recovery in maritime shipping traffic through the critical Strait of Hormuz, coupled with notable breakthroughs in indirect diplomatic talks between Washington and Tehran. While lower energy prices have helped soothe inflation concerns, they simultaneously sap the strength of the petro-dependent Loonie.
This crude-driven pressure on the CAD effectively overshadows otherwise resilient domestic economic data. Statistics Canada revealed that the economy grew by 0.5% in April, rebounding more robustly than anticipated following a mild contraction in March. Furthermore, an advance estimate pointing to an additional 0.1% monthly expansion in May suggests that national growth may be stabilizing, a trend that has successfully eased investor fears over a deeper, tariff-driven economic slowdown.
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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