USD/CAD falls as Dollar weakens on possible Japan FX intervention

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USD/CAD trades on the back foot on Thursday as renewed weakness in the US Dollar (USD) supports the Canadian Dollar (CAD), while the latest US economic data fails to provide support to the Greenback. At the time of writing, the pair is trading around 1.3612, down nearly 0.53% on the day.

USD/CAD falls as US Dollar weakens amid possible Japanese FX intervention.
US GDP rose 2.0% QoQ annualized in Q1, according to a preliminary estimate, while Canada’s GDP grew 0.2% MoM in February.
US-Iran tensions remain elevated, keeping Oil prices supported amid concerns over prolonged supply disruptions.

The US Dollar is under pressure amid possible FX intervention by Japanese authorities to curb sustained weakness in the Japanese Yen (JPY). Reuters, citing Nikkei which quoted a government source, said Japan may have intervened by buying Yen and selling Dollars. However, there has been no official confirmation so far.

The move follows a sharp drop in USD/JPY, which fell more than 2% after testing the 160 level, a threshold where Japan has acted in the past. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 98.16, down about 0.80% on the day.

On the data front, the US economy expanded at an annualized rate of 2.0% in the first quarter of 2026, rebounding from 0.5% in the previous quarter but falling short of market expectations of 2.3%, according to a preliminary estimate.

Inflation data showed mixed signals, with the Personal Consumption Expenditure (PCE) price index rising 0.7% MoM in March, accelerating from 0.4% in February and marking the strongest gain since June 2022. Meanwhile, the core PCE index, the Federal Reserve’s (Fed) preferred inflation gauge, increased by 0.3% MoM easing slightly from 0.4% in February and coming in line with forecasts.

In Canada, Gross Domestic Product (GDP) rose 0.2% MoM in February, matching market expectations and improving from January’s 0.1%. According to National Bank of Canada’s report, the growth was supported by a rebound in manufacturing output, while overall activity suggests the economy is holding up, with first-quarter GDP tracking around a 1.7% annualized pace despite ongoing headwinds, including US tariffs, uncertainty surrounding the renewal of the CUSMA trade agreement, and geopolitical tensions in the Middle East.

On the geopolitical front, tensions between the United States and Iran remain elevated, with no clear signs of a resolution. US President Donald Trump said the United States will continue its naval blockade of Iran until a nuclear deal is reached with Tehran. He is also reportedly considering a plan to reopen the Strait of Hormuz in coordination with allies to safeguard energy flows while maintaining pressure on Iranian ports.

Looking ahead, traders will closely monitor developments in US-Iran tensions, particularly any progress toward reopening the Strait of Hormuz. The situation continues to keep Oil prices elevated, providing underlying support to the commodity-linked Canadian Dollar.

GDP FAQs

What is GDP and how is it recorded?

A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.

How does GDP influence currencies?

A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.

How does higher GDP impact the price of Gold?

When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.