The USD/CAD pair loses ground to around 1.3685 during the early Asian session on Monday. The pair touches its weakest since December 30, 2025, as the US Dollar (USD) posts broad-based declines, and data showed that Canadian Retail Sales rose in November. Traders will keep an eye on the US November Durable Goods Orders report, which will be released later on Monday.
Data released by Statistics Canada showed on Friday that Retail Sales rose by 1.3% MoM in November, compared to a decline of 0.3% in October (revised from -0.2%). Meanwhile, the Retail Sales ex Auto data climbed 1.7% in November versus -0.6% prior. Both figures came in above the market consensus of 1.2%.
The BBC reported on Saturday that US President Donald Trump threatened to slap 100% tariffs on Canadian goods if the country strikes a trade deal with China. Canada’s Prime Minister Mark Carney said on Sunday that his country had no intention of pursuing a free trade deal with China, adding that his recent agreement with China merely cut tariffs on a few sectors that were recently hit with them.
“You have ongoing risk of tensions between Carney and Trump, the USMCA negotiations coming up this summer,” said Aaron Hurd, senior portfolio manager in the currency group at State Street Global. “With that risk on the horizon, unless Canadian economic data really takes off, I think the Canadian dollar is stuck here. It will move with the broad dollar,” Hurd added.
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.
