Market Data 
- USD/CAD gains support amid heightened risk aversion ahead of Trump’s scheduled tariff announcement on April 2.
- The Canadian Dollar strengthened as Trump suggested that “a lot” of countries could receive exemptions.
- The S&P Global US Services PMI jumped to a three-month high of 54.3 in March, rising from 51.0 in February.
USD/CAD is trading around 1.4320 during Tuesday’s Asian session, recovering after losses in the previous session. The risk-sensitive pair is gaining as traders remain cautious ahead of US President Donald Trump’s scheduled tariff announcement on April 2.
However, the Canadian Dollar (CAD) found support as Trump hinted that “a lot” of countries could receive exemptions, though details remain uncertain. Investors welcomed signs that the US may adopt a more measured, targeted approach to tariffs, easing concerns about potential disruptions to Canadian businesses.
Meanwhile, the US Dollar faced pressure due to rising fears of an economic slowdown, driven by concerns over Trump’s trade policies. However, this was offset by hawkish comments from Fed Chair Jerome Powell last week. Powell stated, “Labor market conditions are solid, and inflation has moved closer to our 2% longer-run goal, though it remains somewhat elevated.”
On the data front, the S&P Global US Composite PMI climbed to 53.5 in March, rebounding from February’s 10-month low of 51.6 and marking the strongest expansion since December 2024. This growth was primarily driven by the services sector, which saw a sharp rebound in business activity.
The S&P Global US Services PMI surged to a three-month high of 54.3 in March, up from 51.0 in February and exceeding market expectations of 50.8. Meanwhile, the Manufacturing PMI slipped to 49.8 from 52.7, falling short of the forecasted 51.8. This decline followed February’s strongest manufacturing growth in nearly three years.
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.
