- USD/CAD is trading lower around 1.3755 in early Asian session on Thursday.
- The BoC’s governing council saw a risk that consumer spending could be significantly weaker than expected in 2025 and 2026.
- Traders will be watching U.S. initial jobless claims on Thursday for clues on the labor market outlook.
The USD/CAD pair extends its decline to near 1.3755 during the early Asian session on Thursday. The Canadian Dollar (CAD) is poised to perform well this week despite the lack of top-tier economic data released earlier this week. On Friday, traders will be closely watching Canada’s employment report for July.
Minutes from a recent Bank of Canada (BoC) meeting released on Wednesday showed that members saw a risk that consumer spending would be much weaker than expected in 2025 and 2026. The minutes noted that labor market pressures had eased and the economy was evolving largely as expected, although job creation has been slower among the working-age population.
During the discussions, some members focused more on the downside risks to inflation posed by a weak economy and tight monetary policy, while others emphasized the upside risks to wage growth and the possibility of a rebound in the housing market.
Canadian employment data is due out on Friday. The Canadian economy is expected to add 22.5K jobs in July, while the unemployment rate is estimated to rise to 6.5% in the same reporting period from 6.4% in June.
Meanwhile, rising geopolitical tensions in the Middle East and another drop in weekly US crude oil inventories are boosting crude oil prices and lifting the commodity-linked Canadian dollar. It should be noted that higher oil prices generally support the CAD as Canada is the leading oil exporter to the United States (US).
As for the USD, investors are expecting the Federal Reserve (Fed) to take more aggressive action on interest rates before it misses the opportunity. Markets are pricing in a strong probability of a half-point cut in September. The expectation of deeper rate cuts could limit the US dollar’s upside in the near term.
Traders will be keeping an eye on U.S. initial jobless claims on Thursday. Analysts at TD Securities said: “Jobless claims on Thursday is something markets will be looking for to confirm the slowdown in economic numbers, particularly employment.”
Canadian Dollar FAQs
The key factors determining 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, 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 include market sentiment, i.e. whether investors are betting on riskier assets (risk-on) or looking for safe assets (risk-off), with 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 generally 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 rises as well, 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 occurred in modern times, with the relaxation of cross-border capital controls. Higher inflation typically leads central banks to raise interest rates, which attracts more capital inflows from global investors looking for a lucrative place to store their money. This increases demand for the local currency, which in Canada’s case is the Canadian dollar.
The released macroeconomic data measures 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 direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract 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.
