The USD/CAD pair experienced a decline, approaching 1.4295 during Tuesday’s late American session. This movement coincided with the release of US economic data indicating a contraction in the manufacturing sector, as the ISM Manufacturing PMI fell below 50 in March. The decline also precedes anticipated tariff announcements from the Trump administration scheduled for Wednesday.
The weakening US Dollar contributed to the pair’s downward trajectory. Concerns regarding the potential inflationary impact of the forthcoming tariffs on consumers and businesses are mounting. President Trump has indicated the implementation of “reciprocal tariffs,” potentially affecting numerous countries with existing duties on US goods. The White House has confirmed that these tariffs will be enacted immediately upon their unveiling.
Uncertainty surrounding the specifics of the trade policies, including the scope, severity, and calculation methods of the tariffs, may further weaken the US Dollar in the short term. Conversely, rising crude oil prices could bolster the Canadian Dollar, given Canada’s position as a major oil exporter to the United States. Higher crude oil prices generally correlate with an increase in the CAD’s value.
Key factors influencing the Canadian Dollar include interest rate policies set by the Bank of Canada (BoC), oil prices (Canada’s primary export), overall economic health, inflation rates, and the trade balance. Market sentiment, particularly risk appetite, and the economic performance of the United States, Canada’s largest trading partner, also play significant roles.
The BoC influences the CAD through interest rate adjustments, aiming to maintain inflation within a 1-3% target range. Higher interest rates typically strengthen the CAD. The BoC also employs quantitative easing and tightening measures to manage credit conditions, with the former weakening the CAD and the latter strengthening it.
Oil prices exert a direct impact on the CAD, with rising prices generally leading to an increase in the CAD’s value due to increased demand. Conversely, falling oil prices tend to weaken the CAD. Higher oil prices also contribute to a more favorable trade balance, further supporting the CAD.
Inflation data influences the CAD, with higher inflation often prompting central banks to raise interest rates, attracting foreign investment and increasing demand for the local currency.
Macroeconomic data releases, such as GDP, Manufacturing and Services PMIs, employment figures, and consumer sentiment surveys, provide insights into the health of the Canadian economy and can significantly impact the CAD’s value. A strong economy typically strengthens the CAD, while weak economic data tends to weaken it.
