Insights 
VT 
USD/CAD is steady around 1.3940, supported by a stronger US Dollar following US-China trade talks in Switzerland. Details from these talks suggested tariffs remain high, with China facing US tariffs of 145% and the US facing Beijing’s 125% tariffs.
Despite recession worries, data points to a slowdown in the US economy rather than a full contraction, with declining inflation rates. Yet, concerns persist over potential stagflation, as increased tariffs could harm supply chains, growth, and employment.
Drivers for the Canadian Dollar
The Canadian Dollar faces pressure from mixed labour data and uncertain Bank of Canada policies. Although jobs rose by 7,400 in April, unemployment reached 6.9%, indicating weaknesses, especially in manufacturing.
Key drivers for the CAD include Bank of Canada’s interest rates, Oil prices, economic health, inflation, and trade balance. Higher interest rates generally support the CAD, while Oil price shifts also greatly influence its value.
Macroeconomic indicators impact CAD by reflecting economic health; strong data attracts foreign investment and could prompt higher interest rates. Weak economic data, however, typically results in a weaker CAD.
What we’re seeing here is a relatively consistent USD/CAD pair, holding steady near the 1.3940 level. This stability is mainly thanks to a Greenback that continues to gain strength — lifted most recently by the headlines from the US-China trade discussions in Switzerland. From these talks, we learned that tariffs remain extremely high between the two nations, with the US still applying a 145% rate on Chinese goods, and China responding with a 125% rate of its own. For now, the market appears to view these numbers as sticky, not likely to fade quickly, and their effect is clear: they introduce fresh complications for global supply chains.
While some investors remain cautious about the possibility of a recession in the US, data emerging over the past few weeks does not suggest a full-blown economic contraction. Rather, what we’ve noticed is a cooling — inflation is clearly coming down, albeit slowly. But even with that trend in place, the market remains watchful for stagflation. Rising tariffs can push up input costs, which eventually filter through to consumer prices, just as growth and new job creation lose pace. Pair that with stubbornly higher interest rates, and you get an environment where equities may soften and risk assets struggle.
In contrast, the Canadian side of the equation feels messy. April’s employment change came in at just over 7,000 newly added roles — not bad on the surface — but this was overshadowed by a jump in the unemployment rate to 6.9%. The split is clear. Jobs are being created, but not in the areas where strength is most needed, notably manufacturing. That sector continues to weaken, which tends to hit the CAD harder than other currencies tied to commodity production.
Impact of Oil and Bank Policy
The central bank’s hesitancy adds another layer. While there has been increasing speculation around whether the Bank of Canada might cut rates later this year, policymakers haven’t yet offered the clarity that markets are looking for. Until they do, the Loonie may continue to drift or trade range-bound, depending more heavily on other variables like crude oil markets.
We know oil matters deeply here. Brent and WTI prices heavily influence Canadian trade flows. When oil is in demand globally, producers feel confident, and export volume rises. That usually drives income up and supports the Canadian Dollar. But with global growth forecasts being trimmed in Europe and parts of Asia, the oil outlook isn’t as strong as it was just a few months ago.
In practice, exchange rates work on expectations — and any clarity from data or central bank commentary can quickly adjust positioning. That’s exactly where macroeconomic indicators become vital. When Canadian GDP prints stronger than forecast, or inflation edges higher than expected, it feeds into foreign capital flows. If the probability of rate hikes rises, the CAD tends to gain as yield-seeking investors rotate into Canada. On the other hand, if spending weakens or wages stall, the entire narrative can turn quickly, favouring more defensive trades and weighing down on the Loonie.
Watching the spread between Canadian and US yields will also remain important. Any widening in favour of the US makes the Dollar more attractive for carry trades at the expense of Canada’s currency. Positioned alongside the recent movement in commodity prices, those rate differential cues can be used to reassess net exposure.
From our side, keeping a close eye on weekly jobless claims, CPI releases, and oil inventory levels over the next two weeks makes sense. These instruments aren’t only reactive — they offer signals you can act on well before a trend becomes obvious. It’s during these moments, when positioning is speculative and conviction is shaky, that well-timed entries and exits become most valuable. Manage exposure, track option flows for shifts in sentiment, and pick your levels with discipline. That’s the best way forward right now.
