Market Data 
- The Canadian Dollar rose to a four-month high on Thursday.
- Ongoing tariff tensions are pummeling the US Dollar.
- Little Canadian data worth noting on the docket this week, but recession concerns will cap Loonie gains.
The Canadian Dollar (CAD) rose to four-year highs against the US Dollar (USD) on Thursday, bolstered by a general weakening in Greenback demand. Markets are braced for a prolonged, drawn-out trade spat between the US and every other country as President Trump’s continuous about-facing on his own tariff proposals continues to drag down market sentiment.
Canadian Purchasing Managers Index (PMI) data from earlier this week showed a sharp contraction in business activity expectations, highlighting a growing undercurrent of economic weakness shooting through the Canadian economy. As the Canadian economy continues to grow lopsided, specifically in the face of rising tariffs from the US, the Bank of Canada (BoC) is poised to continue slashing interest rates, which could cap potential Loonie gains moving forward.
Daily digest market movers: US CPI inflation cools faster than expected, but tariffs could end that
- Core US CPI eased to 2.8% YoY in March, falling below 3.0% for the first time in years.
- Despite cooling inflation metrics, uncertainty remains high and trade tariffs are likely to send inflationary shocks through the US economy.
- The US is maintaining an across-the-board 10% “reciprocal” tariff rate, as well as a back-breaking 145% tariff on all Chinese goods imported into the US.
- Fed policymakers continue to warn that rate cuts may have to wait for far longer than market participants currently hope for.
- Key US consumer sentiment figures due on Friday will be a bellwether for inflation expectations heading into tariff season.
Canadian Dollar price forecast
The Canadian Dollar has been putting in work, climbing 2.26% bottom-to-top against the US Dollar over a two-day period and pushing the USD/CAD pair back below the 200-day Exponential Moving Average (EMA) near 1.4075 for the first time since last October. Market flows are largely concentrated in the Greenback, implying any reversal in sentiment will send the Loonie quickly spiralling back into consolidation territory.
USD/CAD daily chart
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.
