The Canadian dollar sails on a calm Monday

  • The Canadian Dollar (CAD) struggled for direction on Monday.
  • Canada’s labor market beat expectations last week.
  • The debate facing CAD traders is whether the BoC will continue to cut rates.

The Canadian Dollar (CAD) remains stuck near multi-year lows against the US Dollar, with CAD traders hampered by a rate-cutting Bank of Canada (BoC) that threatens to further tilt the CAD rate differential against the Dollar down. CAD traders are taking a breather after last week’s jobs numbers on both sides of the 49th parallel, but the BoC’s rate trajectory continues to point downward at a faster pace and further than the Fed ( US Fed

It’s a low-key week on Canada’s economic calendar; Canada saw an increase in net job additions in December, but now the overall focus of the data calendar and investors’ attention will be solely on the US inflation numbers throughout the trading week.

Daily Market Summary: Canadian Dollar Shakes as CAD Traders Assess BoC Outlook

  • The Canadian Dollar was flat on Monday as flows dry up.
  • The BoC cut interest rates five times in 2024, dragging its main benchmark rate from 5.0% to 3.25%, and more cuts are expected in 2025, albeit at a slower pace.
  • Meanwhile, the Fed is expected to keep rates steady for the time being.
  • A raft of US inflation data will be released this week, keeping investors’ attention focused on Dollar flows.
  • Inflationary pressures in the US are simmering in the background, keeping the Fed at bay.

Canadian Dollar Price Forecast

While the Canadian Dollar remains on the weak side, USD/CAD is hitting multi-year highs and oscillating in the 1.4400 area. CAD traders remain unable to push the CAD towards a technical recovery, but further gains for the Dollar appear to be limited by broader market flows.

USD/CAD remains deep in bullish territory, with price action holding well above the 200-day EMA rising towards 1.3900. The immediate barrier to a CAD bull run will be USD/CAD falling below 1.4300, while an upside break towards 1.4500 will put USD buyers on the path to another leg higher.

USD/CAD daily chart

Canadian Dollar FAQs


The key factors that determine the price of the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of oil, Canada’s main export product, the health of its economy, inflation and the trade balance, which is the difference between the value of Canadian exports and its imports. Other factors are market confidence, that is, whether investors bet on riskier assets (risk-on) or look for safe assets (risk-off), with the risk-on being positive for the CAD. 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) exerts significant influence over the Canadian Dollar by setting the level of interest rates that banks can lend to each other. This influences the level of interest rates for everyone. The BoC’s main objective is to keep inflation between 1% and 3% by adjusting interest rates up or down. Relatively high interest rates are usually positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former being negative for the CAD and the latter being positive for the CAD.


The price of oil is a key factor influencing the value of the Canadian Dollar. Oil is Canada’s largest export, so the price of oil tends to have an immediate impact on the value of the CAD. Generally, if the price of oil rises, the CAD also rises, as aggregate demand for the currency increases. The opposite occurs if the price of oil falls. Higher oil prices also tend to lead to a higher probability of a positive trade balance, which also supports the CAD.


Although inflation has traditionally always been considered a negative factor for a currency, as it reduces the value of money, the opposite has actually happened in modern times, with the relaxation of cross-border capital controls. Higher inflation often leads central banks to raise interest rates, attracting more capital inflows from global investors looking for a lucrative place to store their money. This increases the demand for the local currency, which in the case of Canada is the Canadian Dollar.


The published macroeconomic data measures the health of the economy and may have an impact on the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer confidence surveys can 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 raise interest rates, resulting in a stronger currency. However, if economic data is weak, the CAD is likely to fall.

Source: Fx Street

You may also like