The USD/CAD pair dipped a bit during the Asian session, trading between 1.3845 and 1.3850. Positive Canadian employment numbers helped the Canadian Dollar, but concerns about new US tariffs and falling oil prices limited its gains. Crude oil’s recent price stabilization after losses negatively affected the CAD, boosting the USD/CAD pair. Optimism was tempered by rumors of potential rate cuts by the Fed. Traders are cautious, waiting for important announcements from both the Bank of Canada and the US Federal Reserve.

Factors Influencing the Canadian Dollar

The Canadian Dollar is affected by several factors, such as interest rates from the Bank of Canada, oil prices, and overall economic health. Typically, higher oil prices and strong economic data strengthen the CAD, while lower oil prices and weak economic signs can weaken it. Decisions by the Bank of Canada, like changes in interest rates, directly influence the CAD’s value. Higher interest rates usually attract foreign investment, boosting the currency’s strength. Additionally, inflation data plays a role; if inflation is high, it may lead to interest rate increases, raising demand for the currency. Economic indicators like GDP growth and employment statistics offer insights into how well the CAD might perform in the future. A strong economy tends to support a stronger Canadian Dollar, while weak economic data may cause it to decline.

Struggles and Reinforcements

The USD/CAD pair is currently struggling to find its direction near the 1.3850 level, which has been a resistance point for the last two years. The market is assessing the Bank of Canada’s likely hawkish stance against expectations that the Federal Reserve may cut rates next year. This difference in outlook suggests caution before making big bets on the US dollar. The latest Canadian jobs report showed the unemployment rate dropping to 5.5%, supporting our view that the Bank of Canada will keep interest rates steady. With Canadian inflation remaining slightly above the 3% target, the Bank has little reason to suggest rate cuts soon. This fundamental strength continues to support the Canadian Dollar. Conversely, worries about the US dollar arise from forecasts of Federal Reserve rate cuts, especially as US inflation recently cooled to 2.8%. However, potential political risks from new US tariffs could create significant market volatility, reminiscent of tactics from 2017 to 2021. These tariff threats on Canadian goods pose a significant challenge for the loonie, limiting its chances for growth. The commodity sector also dampens the appeal of the Canadian Dollar, as WTI crude prices hold around $72 a barrel. This weakness in oil is tied to broader concerns about slowing global economic growth, which might reduce demand as we approach 2026. Given that oil is Canada’s largest export, ongoing low prices will likely prevent any substantial rise in the loonie. Create your live VT Markets account and start trading now.

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