AUD/CAD rises above 0.9500 ahead of Canada’s labor market data

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AUD/CAD upside may be capped as the commodity-linked Canadian Dollar finds support from higher Oil prices.
WTI gains but heads for a weekly decline after six straight gains as markets await the US–Iran meeting.
Australian Dollar recovers losses as markets see a chance of an RBA hike in May.

AUD/CAD remains in the positive territory after recovering its daily losses, trading around 0.9520 during the European hours on Friday. However, the upside of the currency cross could be limited as the commodity-linked Canadian Dollar (CAD) receives support from higher Oil prices. Traders will watch Canada’s labor market data and Ivey Purchasing Managers’ Index (PMI) for January due for release later in the North American session.

West Texas Intermediate (WTI) Oil price advances after registering modest losses in the previous session, trading around $64.00 per barrel at the time of writing. However, WTI price is on track for a weekly decline after six consecutive weeks of gains, largely driven by expectations surrounding a United States (US)–Iran meeting scheduled later in the day.

Any meaningful progress in US-Iran talks could ease near-term fears of military escalation and potential supply disruptions involving the major OPEC producer, which accounts for roughly one-third of global crude output.

The AUD/CAD cross also came under pressure as the Australian Dollar (AUD) weakened amid broad-based selling in global equities and other risk-sensitive assets. The commodity-linked AUD, often viewed as a liquid proxy for global risk sentiment, was hit by a tech-led equity sell-off driven by concerns over heavy AI-related spending, which unsettled investor confidence.

However, the AUD later regained some ground against its major peers following comments from Reserve Bank of Australia (RBA) Governor Michele Bullock, who said the board raised the Official Cash Rate (OCR) as the economy is more capacity-constrained than previously assessed, requiring a tighter policy stance. Bullock added that the RBA must curb demand growth unless supply capacity expands more rapidly.

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.