USD/CAD has risen to approximately 1.4105 following US President Donald Trump’s announcement of a 90-day pause on reciprocal tariffs. This move is aimed at facilitating trade negotiations with other countries.
The US Consumer Price Index (CPI) for March is anticipated to be a key focus later in the day, with estimates suggesting a year-on-year increase of 2.6% for the headline CPI and a 3.0% rise in the core CPI. Meanwhile, higher crude oil prices may benefit the Canadian Dollar as Canada is the largest oil supplier to the US.
Bank Of Canada And Cad
The Bank of Canada influences the CAD through interest rates, impacting borrowing costs and overall economic health. A stronger economy typically aligns with higher interest rates, which can elevate demand for the Canadian Dollar.
Inflation trends have evolved, with increased inflation potentially leading to higher interest rates, thereby attracting capital inflows. Economic indicators like GDP and employment figures can sway the CAD value; strong data tends to support the currency while weak data may lead to depreciation.
Following Trump’s tariff announcement, the USD/CAD leapt towards 1.4105, reflecting a shift in market sentiment. The move to pause reciprocal tariffs for 90 days was designed to ease tension and create some space for negotiation, especially with trading partners who had been under pressure from US protectionist policies. Despite this, currency markets responded swiftly, favouring the greenback in anticipation of a more stable near-term trade outlook.
The attention now turns to US inflation data, specifically the March Consumer Price Index. We’re expecting to see headline CPI come in at 2.6% year-on-year, while core CPI—which strips out volatile prices like food and energy—is forecast at 3.0%. If inflation surpasses these levels, it could compound expectations for tighter policy from the Federal Reserve, which would serve to further boost the dollar.
Oil Prices And The Canadian Dollar
But we can’t ignore oil prices. They’ve been rising steadily, and that doesn’t hurt the Canadian Dollar, considering Canada’s status as the primary crude exporter to the US. When oil climbs, CAD often follows suit, as higher energy export values bring more demand for the currency. That said, the recent strength in USD has dulled this effect somewhat, dampening CAD’s upside.
Macklem’s influence, through the Bank of Canada, remains central. Rate movements directly filter into borrowing conditions, impacting both consumer and business activity. We’ve seen before how a tighter policy stance can attract demand for the Loonie, especially if analysts start to believe that the BoC will stay ahead of inflation.
Recent inflation developments should not be ignored either. If price pressures persist, we might be looking at an upward revision to interest rate projections. This has previously encouraged more capital flowing north, particularly from funds seeking yield. However, nothing moves in isolation—GDP growth and job market strength will continue to underpin sentiment around the CAD. Evidence of economic resilience tends to support the currency, whereas any lag in these metrics could tip it lower.
For those tracking volatility and seeking a tactical edge, closely watching rate differentials between the Fed and BoC will be important. Relative policy expectations have a direct impact on USD/CAD pricing and can give early signs of an inflection point. We’re at a moment where yield curves, central bank rhetoric, and inflation prints may stir short-term movements, but also set up broader directional trends. Stay alert for surprises—especially from data releases or unforeseen geopolitical ripple effects—that could shift forward guidance or shake up rate pricing.
There’s an opportunity here to recalibrate risk, particularly in options strategies, as implied volatility around major economic events remains somewhat subdued given the underlying uncertainty.
