USD/CAD steadies as stronger US Dollar pressures Loonie
- USD/CAD holds steady as a firm US Dollar keeps the Loonie on the defensive.
- Markets reassess US trade policyfollowing SCOTUS decision.
- Markets look ahead to Canada’s Q4 GDP report due on Friday.
USD/CAD trades flat on Tuesday as a firmer US Dollar (USD) keeps the Canadian Dollar (CAD) under pressure. At the time of writing, the pair is trading around 1.3705, after touching an intraday high near 1.3725.
The Greenback is showing signs of resilience despite lingering uncertainty around US trade policy, after the US Supreme Court ruled last week that President Donald Trump’s use of the International Emergency Economic Powers Act (IEEPA) to impose sweeping tariffs was unlawful.
Following the ruling, President Trump invoked Section 122 of the Trade Act of 1974, announcing a temporary 10% flat tariff on imports from all countries, which takes effect on Tuesday.
Meanwhile, easing expectations for near-term Federal Reserve (Fed) rate cuts are also supporting the US Dollar. Recent US economic data showed slower fourth-quarter Gross Domestic Product (GDP) growth alongside firm Personal Consumption Expenditures (PCE) inflation readings, reinforcing the view that the central bank may opt to keep rates unchanged in the coming months.
Chicago Fed President Austan Goolsbee said on Tuesday that he remains optimistic there could be additional rate cuts this year, but stressed that policymakers need clearer evidence that inflation is moving back toward the 2% target.
Goolsbee added that “inflation progress has stopped” and that it is “not obvious that Fed policy is even restrictive.” He also noted that economic growth and the labor market “don’t seem especially fragile.”
On the data front, the ADP Employment Change four-week average edged up to 12.8K from 11.5K previously. US Conference Board Consumer Confidence rose to 91.2, beating the 87.1 forecast and improving from the prior 84.5 reading, which was revised up to 89.
Attention now turns to President Donald Trump’s State of the Union address on Wednesday, where investors will look for fresh signals on trade policy.
In Canada, the economic calendar remains virtually empty in the near term, leaving traders focused on the upcoming fourth-quarter annualized GDP data due on Friday.
The Bank of Canada (BoC) is widely expected to keep interest rates on hold through 2026. However, officials have acknowledged that uncertainty remains elevated, with US trade tensions continuing to weigh on the sentiment.
Policymakers have stressed that risks are being monitored closely and that the central bank stands ready to adjust policy if the outlook shifts.
Traders are also closely monitoring escalating US-Iran tensions, which have injected fresh volatility into Oil markets. Given Canada’s status as a major crude exporter, swings in Oil prices remain a key driver for the Loonie.
At the time of writing, WTI crude is trading around $65.80, down roughly 0.90% on the day, easing from its highest level since August 2025.
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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