The Canadian Dollar rose over 1% against the US Dollar on Friday, benefiting from the US Dollar’s decline. This increase followed new tariff threats from US President Donald Trump. The Loonie’s performance has closely followed market sentiment due to recent Canadian economic data. With US markets closing for an extended weekend and fewer data releases on the way, focus will shift to the US PCE inflation data coming out on Friday.

Recent Performance of the Canadian Dollar

The Canadian Dollar hit its highest level against the US Dollar since last October, pushing the USD/CAD pair close to 1.3700. This pair has dropped for five consecutive sessions, and technical indicators suggest that it might be oversold, hinting at a potential recovery. Several factors influence the CAD, including Bank of Canada interest rates, oil prices, economic health, and inflation. Typically, higher oil prices and interest rates are good for the CAD, while weak economic indicators can hurt its value. As oil is Canada’s top export, changes in oil prices directly affect the CAD’s value. Economic reports like GDP and employment data also play a crucial role, as they reflect the economy’s strength and can lead to rate adjustments. With significant market volatility returning, the Canadian Dollar’s rise stands out—not only for its speed but also for its underlying reasons. The US Dollar’s drop, due to President Trump’s trade comments, created an opening for the Loonie, which seized the opportunity. The CAD’s gains of more than 1% during this brief period highlight how responsive it can be to external changes, especially when combined with internal stability. So, what unfolded last week? The USD/CAD pair steadily decreased over five trading days, reaching levels unseen since last fall, around 1.3700. This steady decline suggests positive momentum, though a crowded move indicates a possible pause is near. Momentum indicators show signs of fatigue, and a snapback wouldn’t be surprising—though whether it leads to a sustained bounce remains uncertain. For now, the focus shifts to short-term catalysts.

Factors Impacting Canadian Dollar Movements

With major US markets on an extended break and high-impact data lacking earlier this week, attention now turns to upcoming events on the calendar. All eyes are on Friday and the PCE inflation report in the US, which is the Federal Reserve’s favored inflation metric. Any discrepancies from the forecast will significantly affect macro positioning. Remember, the Fed’s interest rate policies continue to guide the USD’s direction, impacting currencies like the CAD. Looking ahead, we have a clear checklist. First, Canadian economic reports this week, though not particularly glamorous, still demand attention. These include national GDP and any employment forecasts. Weak data, especially alongside dovish comments from the central bank, could hinder the CAD’s recent gains. Conversely, stronger-than-expected growth or employment data would support higher BoC rate expectations, which historically boosts the currency. Oil prices also play a crucial role. As Canada’s economy is closely linked to energy, movements in Brent and WTI should not be ignored. Any new triggers for rising crude prices—like geopolitical tensions, OPEC updates, or tighter inventories—usually strengthen the CAD, sometimes even without domestic data playing a role. This link is well-known, but during quieter news weeks, commodity dynamics take on added importance. As we assess our next steps, we combine this short-term analysis with broader structural trends. Recent currency movements have been influenced heavily by policy speculation and external news. However, internal conditions also matter significantly, especially for a commodity-backed currency like the CAD. From a strategy perspective, reactivity may prove more beneficial than prediction. Continued USD softness alongside steady Canadian data could lead to further CAD gains, but current crowded short USD/CAD positions increase the risk of quick reversals if Washington surprises with hawkish news. We can’t overlook the technical outlook either. With the pair near oversold levels and at key price points from the past, it’s reasonable to expect some short-term balancing. Traders looking to enter positions might want to avoid chasing breakouts now; better risk-reward opportunities could arise after a brief consolidation or pullback. Overall, the broader picture remains the same: policy direction is still key, but commodity trends and domestic data are also crucial. The combination of these factors over the next few days will influence the bias as we approach the PCE report. After that, predictions will shift once again. Create your live VT Markets account and start trading now.

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