- USD/CAD extends the decline to around 1.3585 in Thursday’s early Asian session.
- US June ADP private payrolls fell for the first time in two years.
- The US Nonfarm Payrolls report for June will be in the spotlight later on Thursday.
The USD/CAD pair trades in negative territory near 1.3585 during the early Asian session on Thursday. The US Dollar (USD) remains under selling pressure amid mounting US debt concerns, tariff policies uncertainty and rising interest rate cut bets. The US June Nonfarm Payrolls report will take center stage later on Thursday.
Investors are concerned about US President Donald Trump’s massive tax-and-spending bill, which could add 3.3 trillion in additional national debt. Rising fiscal worries have dampened optimism and weighed on the USD against the Canadian Dollar (CAD).
Additionally, the US private payrolls fell in June for the first time in over two years, signaling possible headwinds in the upcoming jobs report and contributing to the Greenback’s downside. Data released by the Automatic Data Processing, Inc. (ADP) on Wednesday showed that private-sector payrolls decreased 33,000 in June after a downwardly revised 29,000 gain in May. This figure came in below the market consensus of 95,000.
All eyes will be on the US employment data for June on Thursday. Economists expect data on Thursday to show the US NFP increasing by 110,000 in June. Also, the Unemployment Rate, ISM Services Purchasing Managers Index (PMI), and weekly Initial Jobless Claims will be released.
Nonetheless, a decline in Crude Oil prices could undermine the commodity-linked Loonie and help limit the pair’s losses. It’s worth noting that Canada is the largest oil exporter to the US, and lower crude oil prices tend to have a negative impact on the CAD value.
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.
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