USD/CAD hovers around 1.3800 as US-EU tensions ease, US PMI eyed

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USD/CAD holds steady amid easing geopolitical and trade tensions between the US and Europe.
President Trump reversed course after securing a NATO framework agreement for a potential deal, though details remain unclear.
Oil prices gain as Saudi Aramco’s CEO downplays oversupply, citing resilient emerging-market demand.

USD/CAD halts its four-day losing streak, trading around 1.3790 during the European hours on Friday. The pair holds ground as the US Dollar (USD) recovers from losses registered in the previous session amid easing geopolitical and trade tensions between the United States (US) and Europe. Traders await the preliminary reading of the US S&P Global Purchasing Managers Index (PMI), which will be released later on Friday.

US President Donald Trump first warned several European nations opposing his Greenland takeover plan of fresh tariffs, but later reversed his stance after reaching a framework agreement with NATO for a possible future deal. However, the US-NATO deal remains unclear, with markets speculating it may include mineral rights and missile deployments.

The annual core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's (Fed) preferred gauge of inflation, rose by 2.8% in November, following the 2.7% increase recorded in October and matching the market expectation. The Federal Reserve is widely expected to maintain interest rates next week. According to the CME FedWatch Tool, markets are now pricing in an 95% chance of a December rate cut.

The USD/CAD pair may further weaken as the Canadian Dollar (CAD) could receive support amid higher Oil prices, given Canada’s status as the largest crude exporter to the United States (US).

West Texas Intermediate (WTI) Oil price advances after registering over 2% losses in the previous session, trading around $59.60 per barrel at the time of writing. Crude Oil prices gain as Saudi Aramco’s CEO eased oversupply concerns, highlighting resilient demand in emerging economies with global consumption hitting record highs last year and set to increase further in 2026.

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.