The Canadian Dollar (CAD) has dropped to its lowest point against the US Dollar (USD) in almost a month. This decline comes after strong US economic data, which has boosted the USD despite low expectations for Federal Reserve rate cuts. Canadian economic data had little effect on the Loonie, as it awaits market changes after this week’s rise in the Consumer Price Index (CPI). The Bank of Canada (BoC) is unlikely to cut rates further, leaving the CAD exposed to larger market trends.

USD Momentum

As the USD continues to rise, the USD/CAD exchange rate has hit new highs above 1.3750 for the first time in nearly a month. Although the US Producer Price Index (PPI) inflation came in lower than expected, other factors such as import tariffs are limiting its impact. The value of the Canadian Dollar is affected by BoC’s interest rates, oil prices—Canada’s main export—and the overall economic condition. Changes in interest rates by the BoC have a significant effect on the CAD. Oil prices are crucial because they influence Canada’s Trade Balance. Macroeconomic indicators, like GDP and employment data, also impact the CAD’s direction. Stronger economic data attracts more investment and strengthens the currency.

Exchange Rate Predictions

We believe the USD/CAD exchange rate is likely to rise in the coming weeks. The main reason is the difference in interest rates; the US Federal Funds Rate is at 5.50%, while the Bank of Canada’s rate is only 4.75%. This gap makes holding US dollars more appealing. The strength of the US economy supports this prediction, making it unlikely that the Federal Reserve will cut rates. For instance, the latest Non-Farm Payrolls report showed that the US added 272,000 jobs, significantly surpassing expectations and indicating economic strength. This kind of positive data strengthens the USD. In Canada, recent data makes the situation more complex for the Loonie. The annual inflation rate for May unexpectedly rose to 2.9%, which may cause officials to hesitate on future rate cuts. This uncertainty puts downward pressure on the currency. Considering these factors, we believe the pair could surpass the recent high of 1.3750. Traders may want to explore strategies that take advantage of this upward trend, such as buying call options that benefit from a move toward the 1.3800 level. This strategy allows for participation in the potential gains while managing risk. Crude oil prices, vital for the Canadian economy, are not offering the needed support. West Texas Intermediate (WTI) has been trading at around $81 per barrel, failing to climb higher and thus providing limited assistance. This stagnant energy market weakens a key support for the currency. Historically, sustained moves above current exchange rates, such as in late 2023, have often led to additional gains. During that period, the US dollar was strong, and there was uncertainty about monetary policy direction. A decisive break above recent highs could indicate a new upward trend for the pair. Create your live VT Markets account and start trading now.

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