USD/CAD stays near 1.3950 as traders adopt caution after US government shutdown

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USD/CAD holds ground for the third successive session, trading around 1.3940 during the Asian hours on Thursday. However, the pair may face challenges as the US Dollar (USD) struggles after the United States (US) government shutdown.

USD/CAD holds ground amid market caution following the US government shutdown.
The September US Nonfarm Payrolls report will not be released on Friday, as the Labor Department has temporarily suspended operations.
The commodity-linked CAD may gain ground due to improving Oil prices.

The US federal government shut down on Wednesday after Congress failed to reach a funding deal, resulting in a deadlock. The September US Nonfarm Payrolls (NFP) report will not be released on Friday, as the Labor Department has paused virtually all activity.

The US ADP Employment Change report, released on Wednesday, showed that private sector payrolls declined by 32,000 in September and annual pay growth was up 4.5% year-over-year. This figure followed the 3,000 decrease (revised from a 54,000 increase) reported in August and came in below the market expectation of 50,000.

The USD/CAD pair could also lose ground as the commodity-linked Canadian Dollar (CAD) receives support from improving Oil prices. It is worth noting that Canada is the largest Oil exporter to the United States (US).

West Texas Intermediate (WTI) Oil price rises to near $62.00 per barrel at the time of writing. However, crude Oil prices remain close to four-month lows amid oversupply concerns. OPEC+ is set to meet this weekend, sparking speculation it may raise output beyond plans.

Canada’s S&P Global Manufacturing PMI slipped to 47.7 in September 2025 from 48.3 in August, signaling a continued contraction in factory activity. This marked the eighth straight month of decline in the manufacturing sector.

Canadian Dollar FAQs

What key factors drive the Canadian Dollar?

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.

How do the decisions of the Bank of Canada impact 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.

How does the price of Oil impact the Canadian Dollar?

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.

How does inflation data impact the value of the Canadian Dollar?

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.

How does economic data influence the value of 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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