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22 Apr 2025
USD/CAD maintains losses near 1.3800, six-month lows due to higher Oil prices
- USD/CAD slips as the Canadian Dollar finds support from a rebound in crude Oil prices and favorable macroeconomic factors.
- China’s 90% reduction in US Oil imports has redirected more than a quarter of its seaborne demand toward Canadian shipments.
- The US Dollar stays on the back foot, pressured by rising political and economic uncertainty in the United States.
USD/CAD continues to slide for the second consecutive day, trading near 1.3810 during Tuesday’s European session. The Canadian Dollar (CAD) gains traction, buoyed by a rebound in crude Oil prices and broader macroeconomic factors.
West Texas Intermediate (WTI) Oil price has bounced back from Monday’s sell-off, trading around $63.30 per barrel as investors covered short positions. Adding to the upside, China’s 90% cut in US Oil imports has shifted over a quarter of its seaborne demand to Canadian supply via the new Alberta–Vancouver pipeline, boosting export revenues and bolstering the CAD.
Meanwhile, markets continue to digest the Bank of Canada's (BoC) recent decision to hold its policy rate at 2.75%. The central bank cited an uncertain US tariff outlook, highlighting that stable growth with near-target inflation remains possible, but escalating tariffs could trigger recessionary pressures and rising inflation in Canada.
Political developments are also in focus as Canada enters the final stretch of its federal election campaign. Prime Minister Mark Carney’s promises of tax cuts and increased infrastructure and defense spending have introduced additional fiscal uncertainty.
The US Dollar (USD) remains under pressure, weighed down by heightened political and economic uncertainty in the United States. Investor sentiment is fragile amid a prolonged global trade impasse, especially as China pushes back against President Trump’s tariff strategies. Concerns escalated further following Trump’s proposal to investigate critical mineral imports, raising fears of slower US growth and inflationary risks.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.