USD/CAD loses ground for the second successful session, trading around 1.4010 during the Asian hours on Monday. The pair depreciates as the US Dollar (USD) struggles due to the ongoing US federal government shutdown. Traders will likely observe the Bank of Canada (BoC) Business Outlook Survey later in the day.
The US government shutdown has stretched into its 19th day with no resolution in sight, as senators failed for the tenth time to break the impasse during Thursday’s votes. It now stands as the third-longest funding lapse in modern US history.
However, the US Dollar (USD) may limit its losses amid easing US-China trade tensions. US President Donald Trump said over the weekend that he wants China to buy soybeans at least in the amount they were buying before. Trump added that he believes China will make a deal on soybeans. “We can lower what China has to pay in tariffs, but China has to do things for us too,” he added.
US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng are scheduled to meet in the coming days to ease tensions ahead of a potential meeting between Presidents Trump and Xi later this month.
The downside of the USD/CAD pair could be restrained as the commodity-linked Canadian Dollar (CAD) could face challenges amid weaker Oil prices. West Texas Intermediate (WTI) Oil price trims its recent gains from the previous session, trading around $57.00 per barrel at the time of writing.
Oil prices struggle amid concerns over rising global supply, following last week’s International Energy Agency (IEA) report expecting OPEC+ members to increase their production, citing its projections for a market surplus.
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.