The USD/CAD pair reached a fresh high during the Asian session on Monday, extending beyond the 1.3900 level, while a modest rise in crude oil prices and a strong Canadian jobs report on Friday bolstered the commodity‑linked loonie, potentially limiting further upside amid relatively weak USD movement.
WTI crude oil rose about 4.5% after Iran’s missile strike on Israel’s Ramat David air base on Sunday night disrupted a fragile ceasefire and dampened expectations of a resolution to the three‑month conflict. Meanwhile, Statistics Canada reported that Canada added 87,800 jobs in May, with the unemployment rate slipping to 6.6%, providing additional support for the Canadian dollar and prompting caution among USD/CAD bulls.
After the upbeat US nonfarm payrolls report on Friday, the USD took a brief pause, having surged to a two‑month high, which helped cap the USD/CAD pair. The report showed that the economy added 172,000 jobs in May, exceeding the 85,000 forecast and the previously revised 179,000 figure, while the unemployment rate remained steady at 4.3%, mitigating expectations of a slowdown in average hourly earnings.
Traders reacted swiftly, pricing in a greater than 70% probability that the Federal Reserve will raise rates by year‑end, while ongoing geopolitical tensions continue to bolster the safe‑haven USD. Recently, the Israeli air force struck military sites in western and central Iran in response to Iran’s ballistic missile attack on Israel’s Ramat David air base on Sunday night.
Consequently, the USD’s most straightforward trajectory remains upward, reinforcing the recent uptrend in USD/CAD that has persisted over the past month. Looking ahead, there are no major economic releases scheduled for Monday from either the United States or Canada, leaving the USD/CAD pair vulnerable to oil price movements and forthcoming geopolitical headlines.
Canadian Dollar FAQs
The Canadian Dollar’s movement is primarily driven by the Bank of Canada’s interest‑rate policy, the price of oil—Canada’s leading export—economic health, inflation, and the trade balance, which reflects the gap between export and import values. Additional influences include investor sentiment: risk‑on environments tend to boost the CAD, whereas risk‑off attitudes favor safe‑haven assets, and the strength of the U.S. economy, Canada’s main trading partner, also plays a significant role.
The Bank of Canada exerts a strong influence on the loonie by setting the benchmark interest rate for interbank lending, which in turn shapes overall interest rates. Its primary objective is to keep inflation within a 1‑3% target range by adjusting rates higher or lower. Higher interest rates generally support the CAD, while monetary tools such as quantitative easing can weaken it, and tightening can strengthen it.
Oil prices exert a direct impact on the CAD because petroleum is Canada’s foremost export. When oil prices rise, the increased demand for the currency tends to lift the CAD, whereas falling oil prices tend to weigh it down. A higher oil price also improves the likelihood of a positive trade balance, further bolstering the Canadian dollar.
Although inflation has historically been viewed as detrimental to a currency, recent relaxations in cross‑border capital controls have reversed that dynamic. Higher inflation often prompts central banks to raise interest rates, drawing in greater capital inflows from investors seeking higher returns, which increases demand for the domestic currency—in Canada’s case, the Canadian dollar.
Macroeconomic data releases—including GDP, manufacturing and services PMI, employment figures, and consumer sentiment—serve as barometers of economic health and can affect the CAD’s direction. A robust economy supports the Canadian dollar by attracting foreign investment and prompting the Bank of Canada to raise rates, thereby strengthening the currency; conversely, weak data tends to depress the loonie.
