Canadian Dollar edges lower against Greenback as risk-off flows dominate

Daily digest market movers: Canadian Dollar backslides on Greenback leg-up

The Canadian Dollar remains weak-footed against the US Dollar, down 0.4% in early February and pushing the USD/CAD pair back up into the 1.3700 region.
US employment figures on Thursday were broadly negative, sparking a sour tone in global investor sentiment.
Loonie markets will likely remain tepid until key Canadian labor market figures publish on Friday.
Datawatchers await the latest Nonfarm Payrolls (NFP) data from the US, which has been pushed out to next Wednesday following the latest brief federal funding freeze.

USD/CAD daily chart

Technical Analysis

In the daily chart, USD/CAD trades at 1.3671. The pair sits beneath the 50- and 200-day EMAs, both sloping lower to reinforce a bearish bias. The 50-day EMA at 1.3779 caps near-term recoveries, while the 200-day EMA at 1.3862 marks a broader ceiling. Stochastic (14,5,5) has rebounded to 38.48, indicating momentum is stabilizing but remains below neutral. Bias stays heavy while price holds under the 50-day average.

EMA alignment keeps rallies corrective, and bears would retain control unless a daily close above the 50-day EMA materializes. A break higher could target the 200-day EMA, while failure to reclaim the 50-day gauge would maintain pressure on the prevailing downtrend. The oscillator’s upturn would need follow-through above the midline to confirm a stronger rebound; otherwise, sellers would be expected to fade bounces.

(The technical analysis of this story was written with the help of an AI tool.)

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.