The USD/CAD pair is trading lower around 1.4395 in the Asian session on Friday, with the Canadian Dollar (CAD) receiving support from a higher Canadian Manufacturing PMI and rising crude oil prices. The Canadian Manufacturing PMI rose to 52.2 in December, exceeding expectations and hitting its highest level since February 2023. Meanwhile, the increase in crude oil prices is benefiting the CAD as Canada is the largest oil exporter to the US. However, threats of US tariffs and domestic political uncertainty could potentially weaken the Loonie and boost USD/CAD. President-elect Donald Trump has threatened to impose tariffs on Canada and Mexico, which could impact the CAD value.
The Federal Reserve (Fed) recently lowered the target federal funds rate in December, but signaled a slower approach to rate cuts in 2025 compared to previous forecasts. This more cautious stance by the Fed could potentially support the Greenback in the near term and limit the losses of the USD/CAD pair. Traders will closely monitor US economic data releases for further insights into the US economy and potential Fed rate cuts, with the US Manufacturing PMI for December being a key highlight to watch. Additionally, market sentiment, the health of the US economy, inflation, and trade balance all play important roles in influencing the CAD value.
Key factors influencing the Canadian Dollar include interest rates set by the Bank of Canada, the price of oil, Canada’s largest export, the country’s economic health, inflation, and trade balance. As the largest trading partner of Canada, the US economy also impacts the Canadian Dollar. The Bank of Canada plays a significant role in influencing the CAD by setting interest rates to maintain inflation within a specific range. Higher interest rates are typically positive for the CAD, while quantitative easing and tightening can impact credit conditions.
The price of oil has a direct impact on the Canadian Dollar as petroleum is Canada’s main export. Higher oil prices can boost the CAD value, while lower prices can lead to depreciation. Inflation, traditionally seen as negative for a currency, can actually attract global investors seeking higher returns. Macroeconomic data releases such as GDP, PMIs, employment, and consumer sentiment surveys also affect the CAD. Strong economic indicators can attract foreign investment and lead to a stronger CAD, while weak data could result in a weaker currency.
In conclusion, the USD/CAD pair is trading lower in the Asian session on Friday, with the CAD supported by positive Canadian Manufacturing PMI data and rising crude oil prices. The Fed’s cautious approach to rate cuts could limit losses for the pair, but threats of US tariffs and domestic political uncertainty may impact the CAD value. Traders will closely monitor US economic data releases for further insights, while key factors such as interest rates, oil prices, inflation, and economic indicators continue to influence the Canadian Dollar.
