The US Dollar (USD) shows marginal gains against its Canadian counterpart on Wednesday, trading near 1.3650 at the moment of writing. The pair’s reversal from weekly highs above 1.3700 has been contained above 1.3625, with USD downside attempts limited, ahead of the release of January’s ADP Employment Change report.
The ADP report will be analysed with particular interest later on Monday, as the crucial Nonfarm Payrolls release, scheduled for Friday, will be delayed due to a partial government shutdown.
Private-sector employment is expected to have shown net job creation of 48K in January, up from 41K in December. These figures are consistent with the stalled labour market seen in 2025, at levels well below the 186K net jobs monthly average seen in 2024.
The data, however, endorses the Federal Reserve’s (Fed) stance of gradual monetary easing and is likely to provide additional support to the US Dollar, already buoyed by the end of a two-day government shutdown and the positive impact of Kevin Warsh’s nomination as the next Fed chairman.
In Canadá, the S&P Global Manufacturing PMI released on Monday revealed that factory activity grew at its fastest pace in more than a year, offsetting the impact of the weak monthly Gross Domestic Product growth seen last week. Later in the week, a speech from the governor of the Bank of Canada, Tiff Macklem, on Thursday, and Canadian employment numbers, due on Friday, will set the Loonie’s near-term direction.
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.
Source: https://www.fxstreet.com/news/usd-cad-holds-above-13625-with-us-adp-employment-in-focus-202602041016
