- The USD/CAD quotes about 1,3945, extending Friday’s rally and marking its fourth consecutive profit session.
- The commercial truce between the US and China raises the global risk of risk, supporting the US dollar.
- The markets expect the US CPI data on Tuesday, Fed comments and broader macroeconomic updates.
The US dollar (USD) is contributing upwards against the Canadian dollar (CAD) at the beginning of the week, supported by a renewed appetite for the risk after a commercial agreement between the US and China, divergent expectations of interest rates and the anticipation of important economic data of the US.
At the time of writing, the USD/CAD is quoting around 1,3945, maintaining Friday’s uprising impulse.
The pause in the tariffs between the US and China raises the feeling and supports the US dollar
The feeling of risk improved after US officials and China agreed a 90 -day pause in new tariffs, relieving pressure on global supply chains and moderating the fears of a short -term economic slowdown.
Although Canada is not directly involved in the agreement, development has reinforced global demand expectations and has strengthened the US dollar by increasing market confidence.
The commercial truce has also strengthened the expectations that the Federal Reserve (FED) maintain its restrictive policy position for longer, especially since inflation is maintained above the objective and resilience of the labor market persists.
Key data from the US and Fed speakers will guide the direction of the USD/Cad
This week presents a dense macroeconomic calendar that could shape the USD/CAD address. On Tuesday, all eyes will be placed in the US Consumer Price Index (CPI) report.
The markets expect an increase of 0.3% monthly in both the general and underlying CPI, with interannual figures projected to remain stable at 2.4% and 2.8%, respectively.
While the CPI is a critical input for the FED policy, it is part of a broader narrative. The perspective will also be influenced by the comments of several Fed officials, especially President Jerome Powell, who is scheduled to speak Thursday. Their statements will follow the previous comments of the governors Waller, Jefferson and Daly earlier.
Together, these events will help clarify whether the Fed is inclined to maintain its current political position or consider cuts later this year. According to CME Fedwatch, the first rate cut is now expected in September, although this schedule remains very sensitive to the data that is coming.
The Canadian labor market indicates underlying weakness
Meanwhile, internal foundations continue to weigh on the Canadian dollar. The Labor Market Report of the Canada Statistics showed a net employment gain of 7,400 positions in April, above the provision of 2,500. However, the unemployment rate unexpectedly rose to 6.9%, the highest level since the late 2023, outside the distortions related to the pandemic.
The report reveals signs of slack in the labor market, especially in the manufacturing sector, where employment losses continue to accelerate. These trends have increased the expectations of a possible rate cut by the Bank of Canada as soon as in June, further expanding the divergence of policies with the Fed and undermining support for the Loonie.
USD/CAD about 1.40 as the bullish impulse accumulates
The USD/CAD has exceeded the Fibonacci recoil level of 61.8% of September 2024 to February 2025, which is located at 1,3944. The price action now faces the 200 -day mobile average (currently in 1,4018), with the following resistance seen at the 50% recoil level in 1,4106.
USD/CAD DAILY GRAPH
A daily closure sustained above the 1,4018 area would reinforce the bullish impulse and open the door to the maximum of April in 1,4415 and possibly the maximum of March in 1,4536. However, a short -term consolidation is possible given the strong ascent since the minimum of May, especially with high -impact data and Fed comments ahead.
At the bottom, the support is found in 1,3944 (the level of broken fibonacci), followed by the minimum of November 2024 in 1,3823. The relative force index (RSI) is in ascending trend and currently about 55.6, suggesting that there is room for more profits before overcompra conditions arise.
Canadian dollar faqs
The key factors that determine the contribution of the Canadian dollar (CAD) are the level of interest rates set by the Bank of Canada (BOC), the price of oil, the main export product of Canada, the health of its economy, inflation and commercial balance, which is the difference between the value of Canadian exports and that of its imports. Other factors are market confidence, that is, if investors bet on riskier assets (Risk-on) or seek safe assets (Risk-Off), being the positive risk-on CAD. As its largest commercial partner, the health of the US economy is also a key factor that influences the Canadian dollar.
The Canada Bank (BOC) exerts a significant influence on the Canadian dollar by setting the level of interest rates that banks can provide with each other. This influences the level of interest rates for everyone. The main objective of the BOC is to maintain inflation between 1% and 3% by adjusting interest rates to the loss. Relatively high interest rates are usually positive for CAD. The Bank of Canada can also use quantitative relaxation and hardening to influence credit conditions, being the first refusal for CAD and the second positive for CAD.
The price of oil is a key factor that influences the value of the Canadian dollar. Oil is the largest export in Canada, 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, since the aggregate demand of the currency increases. The opposite occurs if the price of oil drops. The highest prices of oil also tend to give rise to a greater probability of a positive commercial balance, which also supports the CAD.
Although traditionally it has always been considered that inflation is a negative factor for a currency, since it reduces the value of money, the opposite has actually happened in modern times, with the relaxation of cross -border capital controls. Higher inflation usually leads to central banks to raise interest rates, which attracts more capital of world investors who are looking for a lucrative place to save their money. This increases the demand for the local currency, which in the case of Canada is the Canadian dollar.
The published macroeconomic data measure 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 confidence surveys can influence the CAD direction. A strong economy is good for the Canadian dollar. Not only attracts more foreign investment, but it can encourage the Bank of Canada to raise interest rates, which translates into a stronger currency. However, if the economic data is weak, the CAD is likely to fall.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
