USD/CAD stabilizes around 1.3900 after rebounding from five-month lows
- USD/CAD rebounds from Monday’s five-month low of 1.3828.
- Fed’s Bostic noted that the US central bank still faces a long path to reach its 2% inflation goal.
- Canada’s 10-year government bond yield eased to 3.12% as investors reacted to evolving trade dynamics and ongoing global uncertainties.
USD/CAD halts its four-day losing streak, trading around 1.3890 during the Asian hours on Tuesday. The pair edges higher as the US Dollar (USD) attempts to stabilize amid mounting concerns over stagflation. Traders will likely observe BoC Consumer Price Index Core data for March due later in the day.
Atlanta Fed President Raphael Bostic remarked during early Tuesday’s market session that the US central bank still has a long road ahead to achieve its 2% inflation target, casting doubt on market expectations for additional interest rate cuts.
Deutsche Bank now forecasts a 25 basis point rate cut in December—reversing its previous stance of no cuts in 2025—followed by two more cuts in Q1 2026. The terminal rate is projected at 3.5–3.75%.
Meanwhile, the Canadian Dollar (CAD), a risk-sensitive currency, saw support as market sentiment improved following US President Donald Trump’s announcement of tariff exemptions on select tech products—such as smartphones, laptops, and other electronics. The move helped ease fears of a broader economic slowdown amid escalating US-China trade tensions.
Canada’s 10-year government bond yield slipped to 3.12% on Tuesday, retreating from a recent high of 3.27%, recorded on April 11, as investors adjusted to shifting trade dynamics and persistent global uncertainties in line with broader market trends.
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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