Insights 
VT 
The Canadian Dollar surged over a full percent against the US Dollar on Friday, benefitting from the latter’s weakness. This rise came after US President Donald Trump made fresh tariff threats.
The Loonie’s performance has been tied closely to market sentiment due to mid-tier Canadian economic data this week. With US markets closing for an extended weekend and limited data releases, market attention will shift towards Friday’s US PCE inflation data.
Recent Performance of the Canadian Dollar
The Canadian Dollar reached its highest level against the US Dollar since last October, with USD/CAD nearing 1.3700. The pair has declined for five straight sessions as technical indicators suggest potential oversold conditions could prompt a rebound.
Factors influencing CAD include Bank of Canada interest rates, oil prices, economic health, and inflation. Higher oil prices and interest rates are generally favourable for CAD, whereas weak economic data can have the opposite effect.
Oil is Canada’s main export, so its price movements directly impact CAD’s value. Economic data releases such as GDP and employment indicators also affect the currency’s performance, signalling the economy’s strength and influencing potential rate changes.
With volatility resurfacing across major currency pairs, the move in the Canadian Dollar toward multi-month highs stands out – not just because of its pace, but because of what’s driving it. The downward pressure on the US Dollar, caused by trade policy remarks from Trump, handed the Loonie an opportunity. And it took it. Gains of over 1% in this short stretch underline how reactive CAD can be when external shocks interact with internal stability.
Now, what happened last week? Through five trading sessions, the USD/CAD pair has marched lower, with few interruptions. It’s currently testing levels that haven’t been seen since last autumn, around 1.3700. That kind of slide, uninterrupted by meaningful counters, bodes well for short momentum, although the crowded move suggests a breather isn’t far off. Momentum oscillators indeed show signs of exhaustion. When this happens, a bit of a snapback shouldn’t catch anyone off guard – though whether that turns into a sustained bounce, that’s not yet certain. For now, the debate turns to near-term catalysts.
Factors Impacting Canadian Dollar Movements
With major US markets on pause for an extended weekend and high-impact data points lacking early in the week, attention turns farther down the calendar. All eyes now point to Friday with the PCE inflation release in the US – that’s the Federal Reserve’s preferred inflation measure. Any deviation from forecast here carries weight across macro positioning. Bear in mind, the Fed’s interest rate stance is still driving directional flows in the broader USD, and by extension, influencing currencies like CAD.
From our side, it’s a clear checklist. First, Canadian economic printouts scheduled this week, while perhaps less glamorous, still warrant attention. These include national GDP and any forward-looking employment inputs. Weakness here, especially if paired with dovish central bank commentary, could limit CAD’s recent progress. On the flip side, better-than-expected growth or labour numbers will support elevated pricing for BoC rate expectations – and that, historically, offers a tailwind for the currency.
Oil prices also remain a hinge point. Since Canada’s economy is tightly linked to energy, Brent and WTI levels shouldn’t be treated like noise. Any fresh catalyst for upside in crude – whether geopolitical tension, OPEC commentary or tighter inventories – tends to strengthen CAD, often independently of domestic data. This correlation isn’t new, but in weeks where scheduled news thins out, commodity dynamics become even more relevant.
As we weigh our next moves, we marry this short-term analysis with broader structural forces. Yes, currency movements of late have had a lot to do with policy speculation and external headlines. But internal conditions matter just as much, especially for a commodity-backed currency like CAD. So from a positioning standpoint, reactivity will likely serve better than anticipation. Any extension of USD softness paired with calm Canadian data may offer follow-through – though at this juncture, stretched short USD/CAD bets raise the risk of abrupt reversals on any hawkish surprise out of Washington.
There’s no ignoring the technical picture either. With the pair hugging oversold thresholds and sitting on levels that previously acted as price memory, it’s not unreasonable to expect short-term balancing flows. Traders hunting entries either way will probably want to avoid chasing breakouts here, with better risk-reward potentially developing after a brief period of consolidation or retracement.
The broader theme appears unchanged: policy direction still dominates, but commodity trends and domestic data are not far behind. The blend of these signals over the next few days will shape the bias going into the PCE figure. And from there, probabilities adjust again.
