Canadian Dollar edges lower below 1.3600 as strong US NFP data boosts US Dollar
- USD/CAD edges higher to near 1.3580 in Thursday’s Asian session.
- US NFP rose in January by the most in more than a year; the Unemployment Rate unexpectedly fell.
- Traders brace for the US January CPI inflation data for fresh impetus, which is due on Friday.
The USD/CAD pair trades with mild gains around 1.3580 during the Asian trading hours on Thursday. The US Dollar (USD) edges higher against the Canadian Dollar (CAD) on a stronger-than-expected employment report. Traders will take more cues from the US Consumer Price Index (CPI) inflation report later on Friday.
The US economy added 130,000 jobs in January, above the market consensus of 70,000, according to the Bureau of Labor Statistics on Wednesday. The Unemployment Rate declined to 4.3% in January from 4.4% in December, better than the forecast of 4.4%.
The upbeat report suggests that the US labor market continued to stabilize at the start of 2026, reducing the chances the Federal Reserve (Fed) will see a need to cut interest rates again by midyear. This, in turn, provides some support to the Greenback against the CAD.
The US CPI inflation data will be closely watched on Friday. The headline and core CPI are projected to show a rise of 2.5% YoY in January. On a monthly basis, the headline and core CPI are estimated to show an increase of 0.3% during the same period. In case of a softer-than-expected outcome, this could drag the USD lower in the near term.
Ongoing geopolitical risks could boost crude oil prices and underpin the commodity-linked Loonie. It is worth noting that Canada is a major oil-exporting country, and high crude oil prices generally have a positive impact on the CAD.
Canadian Dollar FAQs
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.
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.
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.
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.
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.