Insights 
VT 
USD/CAD trades near 1.3855 in the early Asian session, buoyed by positive US economic data. The US S&P Manufacturing PMI increased to 52.3 in May, exceeding expectations, and leading to a stronger USD against the CAD.
S&P reported a rise in the US Global Composite PMI from 50.6 in April to 52.1 in May. Both Manufacturing and Services PMIs improved to 52.3, boosting the US currency.
Us Employment Data
US Initial Jobless Claims for the week ending May 17 fell to 227K, below the anticipated 230K, according to the US Department of Labor. Continuing Jobless Claims increased by 36K to reach 1.903M for the week ending May 10.
Lower crude oil prices could negatively impact the CAD due to Canada’s significant oil exports to the US. Traders await Canadian Retail Sales data for April, which is forecasted to grow by 0.7%.
Factors affecting the Canadian Dollar include Bank of Canada interest rate decisions, oil prices, the economic health of Canada and the US, inflation, and trade balance. Generally, increased oil prices, positive economic indicators, and a healthier economy support a stronger CAD.
With the USD/CAD trading close to 1.3855 during the early stages of the Asian session, it’s clear that recent US economic strength has played an outsized role in bolstering the dollar. The latest data out of Washington is providing concrete directional cues. Specifically, we’ve seen the S&P Manufacturing PMI move to 52.3 in May, a noticeable improvement that runs above prior forecasts. This reading, paired with an uptick in the US Global Composite PMI from 50.6 to 52.1, signals broader improvement in US business activity across both goods and services.
The manufacturing and services numbers, both hitting 52.3, present a unified picture: businesses across sectors are seeing growth. In previous cycles, such a configuration often fortifies the dollar’s standing, especially against commodity-linked currencies like the Canadian Dollar. This time appears to be no different.
Labour data reinforced the positive direction. Jobless claims for the week ending 17 May came in at 227,000, just shy of expectations. This undershoot implies strength in the employment market, even if continuing claims nudged higher by 36,000. We should not overlook the progression in continuing claims, which points to underlying churn that may take time to resolve. But for now, the reaction has leaned in favour of dollar resilience.
Meanwhile, pressure on energy markets introduces a fresh challenge for the loonie. A notable dip in crude prices undermines sentiment around Canada’s currency, given the country’s status as a major oil exporter to its southern neighbour. That sensitivity becomes more pronounced when oil declines occur alongside a broadly stronger greenback and upbeat US macro releases.
Impact Of Canadian Retail Sales
Canada’s April Retail Sales, expected to rise 0.7%, will be closely monitored next. The figure, should it surprise to the downside, could accelerate recent momentum in USD/CAD even further. Should the data broadly match or exceed expectations, any pause in upward dollar movement could offer some brief reprieve.
Factors shaping outlook have been fairly consistent, but the weighting assigned to each often shifts depending on the relative strength of the two economies. The interest rate path of the Bank of Canada continues to matter, particularly as speculation around potential policy divergence grows louder. If monetary authorities in Ottawa lean toward cuts while the Federal Reserve holds steady, the exchange rate may move swiftly in reaction.
In addition, broader inflation conditions and trade flows between the two countries will continue to speak volumes. When oil stabilises or rebounds, that may help limit further depreciation. But for now, volatility in commodities and steady US prints create clearer directional biases.
Expectations over the coming week will largely be focused on macro releases from both countries, and any deviation could fuel brisk movement. As always, we’re watching how valuations respond in futures pricing as that’s been a reliable barometer for near-term positioning. In turn, options traders should also pay close attention to implied volatility shifts across key expiry dates, particularly ahead of central bank appearances or economic reports with high surprise potential.
