The USD/CAD pair trades on a flat note around 1.3785 during the early Asian trading hours on Friday. Traders continue to assess the developments surrounding the US-Iran agreement to extend a ceasefire. Canada’s Gross Domestic Product (GDP) report for the first quarter (Q1) will be in the spotlight later on Friday.
The Guardian reported on Thursday that the agreement would extend the truce for another 60 days and allow traffic to flow through the strategic waterway while negotiators tackle difficult issues such as Iran’s nuclear program. On Friday, US Vice President JD Vance said that “a couple of language points” are still under discussion, but the sides are making progress in peace talks.
Positive developments surrounding the ceasefire deal could drag the crude oil prices lower. It is worth noting that Canada is a major oil-exporting country, and lower crude oil prices generally have a positive impact on the Canadian Dollar (CAD).
Traders brace for Canada’s GDP data later on Friday for fresh impetus. The Canadian economy is projected to show annualized growth of 1.5% in Q1 of 2026, compared to a contraction of 0.6% in Q4 of 2025. If the report shows a stronger-than-expected outcome, this could provide some support to the Loonie against the US Dollar (USD) in the near term.
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.
