- USD/CAD benefits will be supported amid increased risk aversion ahead of Trump's scheduled tariff announcement on April 2nd.
- The Canadian dollar has been strengthened, as Trump suggested that many countries could receive exemptions.
- The S&P Global US Services PMI jumped to a three-month high of 54.3 in March, rising from 51.0 in February.
USD/CAD traded around 1.4320 during Tuesday's Asian session, recovering after losing in the previous session. The risk-sensitive pair has been gaining as traders are being cautious ahead of President Donald Trump's scheduled tariff announcement on April 2nd.
However, the Canadian Dollar (CAD) found support as Trump suggests that many countries can receive exemptions, but details remain uncertain. Investors welcomed the signs that the US would adopt a more measured, targeted approach to tariffs and ease concerns about potential disruptions for Canadian companies.
Meanwhile, the US dollar was facing pressure due to growing fears about a slowdown due to concerns over Trump's trade policy. However, this was offset by Hawkish's comments from Federal Reserve Chairman Jerome Powell last week. Powell said: “The labor market situation is solid and inflation has approached its 2% long-term target, but it's rising slightly.”
Data-wise, S&P Global US's combined PMI rose to 53.5 in March, rebounding from its 10-month low of 51.6 in February, marking its strongest expansion since December 2024.
S&P Global US Services PMI surged to a three-month high of 54.3 in March, surpassing market expectations of 50.8 from 51.0 in February. Meanwhile, the manufacturing PMI slipped from 52.7 to 49.8, falling short of the projected 51.8. This decline followed the strongest manufacturing growth in February in nearly three years.
Canadian Dollar FAQ
The key factors driving the Canadian Dollar (CAD) are the interest rate levels, which are the price of Canada's largest exports, economic health, inflation and trade balance. Other factors include market sentiment, whether investors are taking on a more risky asset (risk-on) or seeking a safe haven (risk-off), whether the risk-on is CAD-positive. As our biggest trading partner, the health of the US economy is also an important factor affecting the Canadian dollar.
The Bank of Canada (BOC) has a major impact on the Canadian dollar by setting the level of interest rates that banks can lend to each other. This affects the interest rate level for everyone. The main goal of the BOC is to keep inflation at 1-3% by adjusting interest rates up and down. A relatively high interest rate tends to be positive for CAD. The Bank of Canada can also use quantitative mitigation and tightening to influence credit terms along with previous CAD negatives and the latter CAD positives.
Oil prices are an important factor that influences the value of the Canadian dollar. As oil is Canada's largest export, oil prices tend to have an immediate impact on CAD values. Generally, as aggregate demand for a currency increases, so does CAD if oil prices rise. If oil prices drop, the opposite is true. Rising oil prices also tend to increase the likelihood of a positive trade balance in favor of CAD.
Inflation was traditionally considered a negative factor in currency, but in reality it was opposed in modern times with the relaxation of capital controls across borders, as it reduces the value of money. The higher the inflation rate, the more likely it will lead central banks to raise interest rates, which will increase capital inflows from global investors seeking a favorable place to keep their money. This increases the demand for the local currency, which is Canadian dollars, in Canada.
Macroeconomic data assesses economic health and may affect Canadian dollars. Indicators such as GDP, Manufacturing and Services PMI, Employment, and Consumer Sentiment Survey can all affect the direction of CAD. A strong economy is good for the Canadian dollar. Not only will it attract more foreign investment, it may also encourage Canadian banks to raise interest rates, leading to stronger currency. However, if economic data is weak, CAD can drop.
