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USD CAD Influence Factors
USD/CAD remains near 1.3800 during Monday’s Asian session, following a previous decline. The US Dollar faces pressure, possibly due to renewed trade tensions after plans to initiate a 100% tariff on foreign-made films were announced.
The US Dollar Index is down for the second day, trading near 99.70. Attention shifts to US ISM Services PMI for further economic insights.
President Trump confirmed Federal Reserve Chair Jerome Powell will keep his position until May 2026. The April Nonfarm Payrolls report exceeded expectations with 177,000 jobs added, and the unemployment rate remains steady at 4.2%.
The Canadian Dollar finds support amid easing recession concerns. Canada’s GDP showed growth despite falling commodity prices and trade dispute fears.
Factors influencing the CAD include interest rates set by the Bank of Canada, Oil prices, economic health, inflation, and trade balance. The Bank of Canada’s goal is to maintain inflation between 1-3%, with higher rates generally supporting the CAD.
Impact Of Oil Prices
Oil being Canada’s largest export, impacts the CAD value – higher prices often strengthen it. Economic indicators such as GDP, employment, and consumer sentiment can also influence the CAD’s direction. A strong economy typically benefits the Canadian Dollar.
Following last week’s adjustment lower, USD/CAD is treading water just below 1.3800 as we move through Monday’s Asian hours, and while the pair may appear relatively stable at first glance, the underlying drivers suggest this balance could be short-lived. The greenback has come under some pressure, most likely triggered by renewed trade protectionism signals – in this case, the push for a 100% tariff on foreign films. While this may seem unrelated to currency flows, the implied protectionist stance fuels broader concerns over international relations and potential retaliation, which tend to weigh on the Dollar when sentiment softens.
On the back of this, the US Dollar Index slipped further for a second day, now flirting with the 99.70 level. That’s telling. From where we sit, it’s clear that the market is now watching domestic service-sector data to understand whether there’s still a firm foundation beneath the broader US economy. With this in mind, the ISM Services PMI reading now takes priority. Any softness there could put further downward pressure on the Dollar, especially if paired with a moderation in Treasury yields.
Powell’s role at the Federal Reserve remains steady through May 2026 following confirmation from Trump, which by itself offered a momentary degree of clarity. What matters more, though, is that April’s jobs report managed to outperform – showing 177,000 positions added, meaning the labour market’s pace, while cooling slightly, still holds firm. The 4.2% unemployment rate staying unchanged reinforces this. Yet, a softer trajectory in wage growth or participation metrics might start shifting rate cut expectations subtly, and it’s worth staying nimble enough to catch that turn.
Moving north, the Canadian Dollar has held relatively firm, aided by diminishing recession chatter after gross domestic product figures showed some resilience. Despite downward pressure from weaker commodity prices and overseas trade alarms, the domestic economy has continued to inch forward. It matters because any hint of sturdiness when others falter becomes a comparative advantage. That’s also tied in with where the Bank of Canada stands on rates.
The BoC wants inflation to stay in that 1-3% area they target. That’s why rate decisions there directly affect CAD direction. Higher rates not only make Canadian assets more attractive, but also suggest they’re operating in a stronger demand environment. Now, if employment or CPI comes in higher than expected, we’d expect markets to start moving pricing away from potential cuts.
Then there’s oil. It’s been softer recently, but we must remember that it serves as more than just a headline for Canada – as a major export, it plays into broader current account flows. When prices climb, Canada benefits on the trade front, offering support for the currency. That said, recent price action in crude has been mixed. So we keep our eye closely on energy demand forecasts and OPEC moves, because any sudden shift there trickles through fairly quickly.
In the meantime, derivative positioning should account for these contrasting signals. While USD softness has crept in, commodity-linked currencies like CAD aren’t on a one-way path higher. There’s tension between firm domestic indicators and external fragilities. Every scheduled release in the coming days – especially from US service sectors or Canadian inflation figures – must be considered not only in isolation, but in how they shift odds on forward guidance. We don’t expect straightforward reactions; we plan for overlapping forces and fading sentiment swings.
Spreads remain key as well. The US-Canada 2-year and 10-year differentials could widen or contract based on Powell’s tone and oil’s next leg. Rather than banking on smooth momentum, we prepare for contained volatility with sharper intraday risk. That means positioning tighter, knowing that a mild retracement doesn’t rule out a renewed breakout – or rejection – near 1.3800.
