The Canadian Dollar (CAD) increased by 1.1% against the US Dollar (USD) on Thursday, reaching 17-week lows for USD/CAD near 1.4000. This change is attributed to a weakening USD following the Trump administration’s announcement of new tariffs.
The CAD has risen consistently, with potential for a fifth week of gains. The Trump administration plans a 10% tariff on imports starting April 5, with reciprocal tariffs set for April 9, although Canada and Mexico have secured temporary relief under USMCA conditions.
Federal Reserve Response To Tariffs
The Federal Reserve has expressed caution regarding potential rate cuts due to tariffs. US Nonfarm Payrolls figures are expected to impact an already strained market.
The CAD has decreased 3.55% since late February and remains 4.73% lower from January’s peaks. The recent rise has brought USD/CAD down to near the 200-day Exponential Moving Average at 1.4070.
Factors influencing the CAD include interest rates set by the Bank of Canada (BoC), oil prices, economic health, inflation, and trade balance. Interest rate adjustments by the BoC aim to maintain inflation between 1-3%.
Oil prices greatly affect the CAD, with higher prices generally increasing currency value due to rising demand. Conversely, declining oil prices impact the CAD negatively.
Impact Of Oil And Inflation On The Cad
Inflation can lead to higher interest rates, attracting global capital inflows and boosting demand for the CAD. Macroeconomic indicators like GDP and employment rates significantly influence the currency’s performance; strong data typically strengthens the CAD.
The recent moves in USD/CAD show a pattern that’s difficult to ignore. With a firm 1.1% swing lower in the pair, reaching levels not seen in over four months, it now hovers just below the 1.4000 mark. In that context, we’re clearly seeing broader dollar weakness emerge again, following announcements from Washington. The new import tariffs, set to take effect in early April, gave the greenback little room to stand on—and that’s despite initial carve-outs granted to Ottawa and Mexico.
Markets haven’t missed a beat reacting to those policy shifts, pricing in delays or hesitations from the Fed in terms of interest rate cuts. With pressure mounting again from geopolitical disruption, it’s understandable that the central bank would take a cautious approach, particularly with the labour market still offering mixed signals. The upcoming Nonfarm Payrolls report will not just add colour; it’s likely to reset expectations in some corners of the market, especially for those timing their exposure around implied volatility.
If one were to zoom out briefly and observe the broader arc since late February, the loonie had lost considerable ground up until recent weeks—but that trend has turned markedly. The fall of nearly 3.6% over that span has now been interrupted by a potential fifth week of consecutive CAD strength, and that shift isn’t happening in isolation. We’re now brushing right against the 200-day EMA near 1.4070, a technical level not just noted on charts but often respected by short- and medium-term momentum strategies.
What’s also playing underneath all of this is energy. Crude oil prices, which tend to carry substantial weight for Canada’s terms of trade, have quietly staged a comeback. As those contracts move higher, they’ve provided further support to the currency. When oil climbs, there’s often an immediate uplift in sentiment towards the CAD, as Canada remains a net exporter. These are not abstract relationships—they are directly tradable.
Remember, the Bank of Canada still has its 1-3% inflation mandate, and their behaviour in the next rate meeting will rely as much on domestic data as global pricing risks. Local consumer inflation and employment figures have recently come in robust. That limits the central bank’s flexibility but also pushes rate differentials closer into focus.
For those navigating directional risk or setting up convexity exposure across USD/CAD, it would be prudent to acknowledge where the majority of recent flows have originated. CTA-driven volume and systematic strategies have been reducing longs in the US dollar broadly, which means thin liquidity can exaggerate effects—especially following sharper economic data or surprises from policymakers.
Now that the pair is testing a level close to its 200-day average, what comes next hinges on whether these gains in the loonie are recalibrated or extended. If Friday’s jobs figures are softer than expected, there could be another leg lower for USD/CAD. That would further entrench the idea that the Fed is boxed in by policy uncertainty and trade tension, interrupting attempts to keep yields elevated.
From our end, watching both interest rate expectations and oil futures remains essential. Layered into those trends are inflation readings and central bank signals, which roll out over the next few weeks. For now, the balance of probabilities tips in favour of consolidation, but volatility remains underpriced.
