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Crude Oil Impact on CAD
USD/CAD shows mild gains around 1.3805 in the early Asian session on Wednesday. The US Consumer Confidence Index for May rose to 98.0, providing a boost to the US Dollar.
Attention is on the FOMC Minutes due later on Wednesday. Alongside, the Canadian Q1 GDP report is expected on Friday, anticipated to decline to 1.7% YoY from 2.6%.
US Durable Goods Orders fell by 6.3% in April, performing better than the predicted 7.9% decline. The Federal Reserve Bank of Minneapolis President suggested maintaining steady interest rates for clarity on inflation from tariffs.
Crude oil price decreases impacted the CAD, as Canada is the largest oil supplier to the US. Oil price changes affect the Canadian Dollar, as a lower crude price typically weakens its value.
The Canadian Dollar is influenced by the Bank of Canada’s interest rates, oil prices, and economic health. A stronger economy usually strengthens the CAD, potentially leading to increased interest rates.
Macroeconomic data such as GDP, PMIs, and employment figures influence CAD’s direction. A strong economy boosts the Canadian Dollar, while weak data could lead to its fall.
Us Economy and Canadian Dollar
The USD/CAD pair is holding modest gains near 1.3805 in early Wednesday trading, supported in part by stronger-than-expected US consumer confidence for May, which moved up to 98.0. This appears to have given the greenback some fresh momentum as traders assess how confident American households feel about the months ahead.
We are awaiting the release of the Federal Reserve’s meeting minutes later today in the US, which could give us a deeper sense of where officials currently stand on rates and economic risk. While no major shift is expected, any language making inflation a longer-term concern could nudge rate expectations upward. That’s something we’ll be dissecting closely.
Meanwhile, Canada’s GDP reading for the first quarter is scheduled for release this Friday. Forecasts indicate a slowdown to 1.7% year-on-year from 2.6%, which would suggest easing momentum in the Canadian economy over the three-month period. If that figure comes in softer than even the lowered expectations, it wouldn’t be surprising to see investors price in a higher chance of policy easing from Ottawa. That would weigh on the Canadian Dollar.
Oil has now become a bit of a headwind too. The recent pullback in crude prices has applied pressure on Canada’s currency. This relationship is quite direct—Canada is a major oil exporter, particularly to the US—so any sustained dip in oil values tends to undermine the CAD versus the USD. Although not abrupt, the softening in oil should not be underestimated when evaluating short-term movements in the currency pair.
Last month’s decline in US durable goods orders was less sharp than anticipated, falling 6.3% versus an expected drop of 7.9%. Nonetheless, it marked a retreat and signals some hesitancy in capital investment, potentially due to rate-related uncertainty. Still, for markets, the better-than-feared result added marginal strength to the dollar.
A recent comment from the head of the Minneapolis Fed also hinted toward keeping interest rates steady for now, partly due to ambiguity over the effects tariffs might have on pricing. This steady-rate preference underlines how focused policymakers are on isolating the core inflationary drivers.
For our part, we’ll be weighing the balance between weakening Canadian growth signals and the resilience of certain US figures, along with where rate expectations are pointing next. We are watching spreads closely. The yield environment in North America shapes much of the USD/CAD trade, and right now, mildly stronger confidence and less-bad US data are giving dollar bulls a reason to remain active.
From a volatility standpoint, we should be braced for some price reaction this week. The GDP print out of Canada and any surprises from the Fed minutes could prompt repricing in interest rate bets. That would make carry-sensitive strategies potentially more reactive than usual.
Keeping one eye on PMI updates and jobs data will also be key for maintaining a position with any conviction in the current quarter. Until we see either a material fade in inflation or clear softening in job markets, it’s likely that central bank caution will remain the prevailing tone, and that often plays well for range-bound setups.
What we’re doing is paying attention to both relative growth stories and how tightly correlated oil trading remains. If GDP misses and crude continues to ease, short-term downside pressure on the CAD could extend. Conversely, fed commentary turning dovish unexpectedly would create tight short-covering potential for the loonie. In these short-term periods, liquidity runs lean and execution slippage rises, so entries and exits matter even more.
Overall, the combination of softening Canadian indicators and a still-supported USD suggests buying on dips may remain the preferred strategy for this pair over the coming days. But any trade should carry tightly defined risk in case sentiment stages an about-face following any policy or data surprise.
