Canadian Dollar languishes near April 2025 lows as USD bulls look past weak NFP report
- USD/CAD retains its bullish bias amid the emergence of some USD dip-buying on Monday.
- Geopolitical uncertainties offset Friday’s weak US NFP report and support the Greenback.
- A dovish BoC and softer crude oil prices undermine the Loonie, further supporting the pair.
The USD/CAD pair holds steady above mid-1.4200s during the Asian session on Monday, trading near its highest level since April 2025, set last week. Moreover, the supportive fundamental backdrop seems tilted in favor of bulls and backs the case for an extension of the recent well-established uptrend witnessed over the past month or so.
The initial market reaction to Friday's weak US Nonfarm Payrolls (NFP) report turned out to be short-lived as traders are still pricing in over an 80% chance that the Federal Reserve (Fed) will hike interest rates by the end of this year. Adding to this, persistent geopolitical uncertainties stemming from the Middle East conflict and the widening Russia-Ukraine war revive demand for the safe-haven US Dollar (USD) at the start of a new week, validating the positive outlook for the USD/CAD pair.
In the latest developments, the head of Yemen’s governing body, Rashad al-Alimi, has announced the start of military operations to retake the remaining territory held by the Houthis in the country. Moreover, Iran’s Foreign Minister Abbas Araghchi said that there is no military solution to the conflict with the US, but Tehran remains ready to return to war. Furthermore, Iranian parliament speaker Mohammad Bagher Ghalibaf said that the Strait of Hormuz will not be opened until our conditions are met.
Meanwhile, Ukraine reported deadly Russian air strikes on the Kyiv region, Kharkiv, and Dnipro. In response, Ukrainian President Volodymyr Zelenskyy said in a post on X that Russia will definitely face a response to this, keeping the geopolitical risk premium in play and offering some support to the Greenback. Adding to this, a weaker tone surrounding crude oil prices is seen as undermining the commodity-linked Loonie and turning out to be another factor acting as a tailwind for the USD/CAD pair.
The Canadian Dollar (CAD) could further continue with its relative underperformance amid the Bank of Canada's (BoC) predominantly dovish policy stance and US-Canada trade tensions. This, in turn, suggests that the path of least resistance for the currency pair remains to the upside, though overbought conditions on short-term charts might hold back traders from placing fresh bullish bets on the USD/CAD pair. Meanwhile, any corrective pullback is more likely to be bought into and remain cushioned.
USD/CAD daily chart
Technical Analysis
Last week's breakout through the previous year-to-date highs, around the 1.4245-1.4250 zone, was seen as a fresh trigger for bullish traders and backs the case for a move towards reclaiming the 1.4300 mark. On the flip side, any corrective pullback now seems to find decent support near Friday's swing low, around the 1.4200 round figure. A convincing break below, however, might prompt some technical selling and drag the USD/CAD pair to the 1.4150-1.4145 region.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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