Crude Oil’s Effect on CAD

The USD/CAD is showing slight gains around 1.3805 in early Wednesday trading. This rise is partly due to a boost in the US Consumer Confidence Index for May, which increased to 98.0, lending strength to the US Dollar. Market attention is on the FOMC Minutes set to be released later today. Additionally, the Canadian Q1 GDP report is expected this Friday, with a decline forecasted to 1.7% YoY, down from 2.6%. In April, US Durable Goods Orders dropped by 6.3%, which was better than the predicted 7.9% decline. The President of the Federal Reserve Bank of Minneapolis suggested keeping interest rates steady for a clearer view of inflation related to tariffs. Declining crude oil prices have impacted the CAD since Canada is the US’s largest oil supplier. A decrease in oil prices generally weakens the Canadian Dollar’s value. The Bank of Canada’s interest rates, oil prices, and the country’s economic health strongly influence the CAD. A stronger economy usually supports the CAD, which can lead to higher interest rates. Macroeconomic data such as GDP, PMIs, and job statistics affect the CAD’s trajectory. A robust economy tends to strengthen the Canadian Dollar, while weak data may lead to depreciation.

The US Economy and the Canadian Dollar

During early Wednesday trading, the USD/CAD pair is holding modest gains at around 1.3805, supported by unexpectedly strong US consumer confidence for May, which rose to 98.0. This boost seems to have invigorated the greenback as traders evaluate American households’ outlook. Later today, we will see the Federal Reserve’s meeting minutes, which could reveal their current stance on interest rates and economic risks. Although no major shifts are expected, any mention of longer-term inflation concerns could push rate expectations higher. We will scrutinize this closely. This Friday, we are expecting Canada’s GDP report for the first quarter. The forecast predicts a slowdown to 1.7% YoY from 2.6%. If the actual result is worse than expected, it may prompt investors to anticipate a higher chance of policy easing from Canada, which could weigh on the Canadian Dollar. Oil prices have also become a concern. The recent decline in crude prices has put pressure on Canada’s currency. Since Canada is a significant oil exporter—especially to the US—a continued drop in oil prices usually undermines the CAD against the USD. While the decrease may not be drastic, it is important not to overlook its effect on short-term currency movements. Last month, US durable goods orders decreased by 6.3%, which was less than the expected drop of 7.9%. This decline indicates some hesitation in capital investment, likely due to uncertainty about interest rates. Still, the better-than-expected result added some strength to the dollar. A comment from the Minneapolis Fed President suggested keeping interest rates steady for now, given the uncertainty surrounding how tariffs might affect prices. This approach highlights how closely policymakers are focused on core inflation drivers. As we assess the balance between declining Canadian growth signals and resilient US data, we also monitor where rate expectations are heading. Current mild growth in the US and less severe data provide a reason for dollar bulls to remain active. We should prepare for potential price reactions this week. The Canadian GDP report and any surprises from the Fed minutes could lead to adjustments in interest rate forecasts. Consequently, carry-sensitive strategies might react more than usual. It’s also crucial to keep an eye on PMI updates and job data to maintain a solid position this quarter. Until we see significant changes in inflation or job market conditions, central bank caution is likely to persist, which often favors range-bound trading. We are focusing on both growth trends and the correlation with oil trading. If GDP falls short and crude prices continue to decline, the CAD could face short-term pressure. Conversely, any unexpected dovish comments from the Fed could create opportunities for a short-covering rally for the loonie. During these short-term periods, liquidity may be low, making precise entries and exits even more important. Overall, the combination of weakening Canadian indicators and a sustained USD suggests that buying on dips may be a favored strategy for this currency pair in the coming days. However, any trades should be accompanied by clearly defined risks in case sentiment shifts abruptly due to policy or data surprises. Create your live VT Markets account and start trading now.

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