USD/CAD remains below 1.3750 due to dovish Fedspeaks, US Initial Jobless Claims eyed

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USD/CAD extends its losing streak for the fifth successive day, trading around 1.3740 during the European hours on Thursday. The pair depreciates as the US Dollar (USD) extends its gains ahead of the US weekly Initial Jobless Claims release due later in the North American session.

USD/CAD depreciates ahead of the US weekly Initial Jobless Claims release due on Thursday.
The US Dollar struggles as Fed officials indicated that monetary policy adjustments have become appropriate amid rising employment concerns.
Markets will be watching Canada’s Ivey Purchasing Managers Index later in the day, ahead of Friday’s labor market report.

The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is extending its losses for the second consecutive day and trading around 98.10 at the time of writing. Last week’s weaker-than-expected employment report reinforced expectations for a rate cut in September, with another possible in December.

Minneapolis Fed President Neel Kashkari, San Francisco Fed President Mary Daly, and Fed Governor Lisa Cook stated on Wednesday that monetary policy adjustments have become appropriate amid growing labor market concerns.

Market sentiment remains cautious after US President Donald Trump announced on Tuesday that he will appoint the Fed’s Chair and Kugler’s replacement by the end of the week. Trump is considering White House economic adviser Kevin Hassett, former Fed Governor Kevin Warsh, and two other candidates for the Fed’s highest post. He confirmed that Treasury Secretary Scott Bessent is not his choice for the Fed’s Chair.

In Canada, Ivey Purchasing Managers Index (PMI) data for July will be eyed later in the day. Focus will turn toward the labor market data, which is scheduled to be released on Friday. Signs of a cooling labor market would likely lead traders to increase bets on the Bank of Canada (BoC) resuming monetary policy easing.

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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