The USD/CAD pair snapped its four-day winning streak, trading around the 1.3900 level during the Asian hour on Monday. The value of the pair declines as the commodity-linked Canadian dollar receives support from higher oil prices, given Canada’s status as the largest exporter of crude oil to the United States.
The price of West Texas Intermediate (WTI) crude oil continues its gains for the second straight session, trading around $59.40 per barrel at the time of writing. Crude oil prices rose after the release of key economic data from China.
Data from the National Bureau of Statistics showed that China’s industrial production rose 5.2% year-on-year in December, accelerating from 4.8% in November, supported by flexible export-led manufacturing activity. China’s GDP expanded 1.2% quarter-on-quarter in the fourth quarter of 2025, up from 1.1% in the third quarter and above expectations of 1.0%. On an annual basis, growth fell to 4.5% from 4.8% but exceeded expectations of 4.4%.
However, the upside in oil prices may remain limited, as easing tensions with Iran have reduced concerns about potential supply disruptions. Market anxiety calmed after US President Donald Trump indicated last week that he might postpone any military action, following Iran’s pledge not to carry out executions of protesters. However, Trump warned that strong action could still be taken if executions resume, leaving some geopolitical risk premium in the market.
The USD/CAD pair may regain strength as the US dollar could rise against its major counterparts, as strong US labor market data dampens expectations for further interest rate cuts by the Federal Reserve through June. Fed officials did not signal an urgent need to ease policy further until there is clearer evidence that inflation is moving sustainably toward the 2% target.
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.
