The US dollar’s recovery from monthly lows below 1.3940 on Friday stalled below the psychological level of 1.4000 on Monday. The pair is hovering above the 1.3980 level at the time of writing, but rising oil prices and market expectations of an immediate rate cut from the Fed make upside attempts limited for now.
Oil prices, Canada’s main export commodity, rose on Monday, approaching the $60.00 level, as investors welcomed news that… OPEC+ agreed to end supply increases As of the first quarter of 2026, amid growing fears of oversupply.
Strong Canadian GDP has dampened hopes of Bank of Canada easing
Furthermore, the Canadian dollar remains supported by the upbeat Canadian GDP numbers released on Friday. Canada’s economy rebounded unexpectedly strongly in the third quarter, growing at a quarterly rate of 0.6%, correcting a 0.5% contraction in the second quarter. On an annual basis, GDP grew by 2.6%, exceeding expectations for a growth of 0.5% and after a decline of 1.8% on an annual basis in the previous quarter.
These figures ease pressure on the Bank of Canada (BoC) to cut borrowing costs at its meeting on December 10, providing a fresh boost to the Canadian dollar.
Conversely, the US dollar remains vulnerable amid growing hopes that the US Federal Reserve will cut interest rates by 25 basis points at its next meeting, also on December 10, and also several more times in 2026. The US dollar index, which measures the value of the US dollar against a basket of currencies, drifted lower on Monday and reached new two-week lows below 99.30. In this context, the USD/CAD pair is unlikely to register a significant recovery.
Frequently asked questions about the Canadian dollar
The main factors that move 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 moving into riskier assets (risk on) or looking for safe havens (risk off) – with risk being positive for the Canadian dollar. As its largest trading partner, the health of the US economy is also a major factor affecting the Canadian dollar.
The Bank of Canada (BoC) has significant influence on the Canadian dollar by setting the level of interest rates that banks can lend to each other. This affects the level of interest rates for everyone. The Bank of Canada’s main goal is to keep inflation at 1-3% by adjusting interest rates up or down. Relatively high interest rates tend to be positive for the Canadian dollar. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD negative and the latter positive.
The price of oil is a major factor affecting the value of the Canadian dollar. Petroleum is Canada’s largest export, so oil prices tend to have an immediate impact on the value of the Canadian dollar. In general, if the price of oil rises, the Canadian dollar also rises, as overall demand for the currency increases. The opposite is the case if the price of oil falls. Higher oil prices also tend to increase the likelihood of a positive trade balance, which also supports the Canadian dollar.
While inflation has always been thought to be a negative factor for a currency because it reduces the value of money, the opposite is the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to prompt central banks to raise interest rates, attracting more capital flows from global investors looking for a profitable place to keep their money. This increases the demand for the local currency, which in Canada’s case is the Canadian dollar.
Macroeconomic data releases measure the health of the economy and can have an impact on the Canadian dollar. Indicators such as GDP, manufacturing PMIs, services, employment and consumer surveys can all influence the direction of the Canadian dollar. A strong economy is good for the Canadian dollar. Not only does it attract more foreign investment, it may encourage the Bank of Canada to raise interest rates, leading to a stronger currency. If economic data is weak, the Canadian dollar will likely fall.
