USD/CAD rises above 1.3800 amid weaker Oil prices, US labor data eyed
- USD/CAD appreciates as the commodity-linked CAD remains under pressure amid weaker Oil prices.
- OPEC+ is set to deliberate potential production hikes at its upcoming policy meeting this weekend.
- Minneapolis Fed President Neel Kashkari warned that tariffs are driving up consumer goods costs, contributing to higher inflation readings.
USD/CAD extends its winning streak for the fourth successive session, trading around 1.3810 during the Asian hours on Thursday. The pair appreciates as the commodity-linked Canadian Dollar (CAD) could have faced challenges due to softer crude oil prices.
Reports suggest that OPEC+, the Organization of the Petroleum Exporting Countries and its allies, will consider fresh production increases at its policy meeting this weekend. The Oil group, seeking to regain market share, could begin unwinding 1.65 million barrels per day of output cuts, equivalent to about 1.6% of global demand.
Additionally, the USD/CAD pair gains ground as the US Dollar (USD) advances ahead of fresh labor market data that could shape the interest rate outlook. Markets await the ADP Employment Change, forecast to indicate slower hiring, along with weekly Jobless Claims expected to rise modestly.
Traders will shift their attention toward Friday’s data that could shape the US Federal Reserve’s (Fed) policy decision in September. Economists project US Nonfarm Payrolls to add about 75,000 jobs in August, while the Unemployment Rate is seen at 4.3%.
The US Dollar (USD) faced challenges as weaker-than-expected July JOLTS Job Openings boosted the odds of the Federal Reserve (Fed) rate cut in September. Job openings declined to 7.18 million from 7.35 million, marking the weakest level since September 2024 and missing forecasts of 7.4 million. The CME FedWatch tool indicates a pricing in more than 97% of a 25-basis-point (bps) rate cut by the Fed at the September policy meeting, up from 92% a day ago.
Statistics Canada will release its labor market figures on Friday, with Net Change in Employment expected to see 7.5K jobs added in August, following a decline of 40.8K in the previous month. Meanwhile, the Unemployment Rate may increase to 7% from 6.9%.
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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