USD/CAD fell to around 1.4100 in Asian trade on Thursday, reversing a five‑day winning streak. The decline reflects reduced safe‑haven demand for the US dollar after a BBC report revealed that the White House confirmed a preliminary memorandum of understanding between President Donald Trump and Iranian President Masoud Pezeshkian aimed at ending the US‑Israel conflict with Iran. The accord follows an electronic signing earlier in the week by U.S. Vice President JD Vance and Iranian Parliamentary Speaker Mohammad Bagher Ghalibaf.
However, the pair may recover as the dollar regains momentum on growing speculation of additional Federal Reserve rate hikes later this year. The Fed’s June Summary of Economic Projections indicated that half of FOMC members anticipate at least one rate increase in 2024. Even though geopolitical disruptions from the Iran situation persist, a resilient labor market and ongoing inflation pressures keep tightening expectations alive.
The Federal Open Market Committee kept its benchmark federal funds rate unchanged at 3.5%–3.75% in its latest meeting. Newly appointed Fed Chairman Kevin Warsh, in his first policy session since taking the helm, pledged to act aggressively to restore price stability.
The Canadian dollar, which moves closely with oil prices, also saw some support as West Texas Intermediate crude held near $75.10 a barrel. Nonetheless, oil may face headwinds from easing tensions in the Middle East and growing prospects of higher U.S. rates toward the end of 2026, tempering CAD gains.
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.
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