The Canadian Dollar (CAD) showed volatility at the start of the trading week, initially rising after the US Dollar (USD) faced challenges due to tariff extension rumours. US President Trump dismissed these rumours while announcing intentions for additional tariffs on China, following retaliatory actions from Chinese officials.
According to the Bank of Canada’s Business Outlook Survey, many Canadian companies expect ongoing repercussions from US tariffs. The survey reflects sentiments from February and may worsen due to recent tariff announcements.
Cad Market Trends
The CAD hovered near the 1.4200 mark against the USD, experiencing a 0.6% drop before rebounding. The market is closely watching upcoming US inflation data, including the Consumer Price Index and Producer Price Index.
Technical analysis shows CAD fluctuating between key moving averages near 1.4300 and 1.4100. The Bank of Canada’s interest rate decisions, oil prices, and economic indicators are influential factors affecting the CAD’s value.
Higher interest rates and rising oil prices typically bolster the CAD, while negative economic data can lead to depreciation. Inflation can prompt higher interest rates, enhancing the CAD’s attractiveness.
We’ve witnessed a week where the Canadian dollar swung amidst external trade drama and internal economic positioning. After early pressure on the US dollar due to speculation about tariff adjustments, initial strength in the loonie was short-lived. When Washington clarified its stance with plans for further tariffs on Beijing — following reprisals from Chinese authorities — this clarity ironically removed some earlier fears and lent support back to the greenback, reversing the earlier moves in the exchange cross.
Policymakers at the Bank of Canada remain in focus. Their Business Outlook Survey, capturing sentiment earlier this year, points to long-lasting aftershocks from trade friction. The backward-looking nature of the survey means it’s only capturing part of the picture — and if recent trade announcements are followed through, the environment for Canadian exporters may worsen further in the near term.
Interest Rates And Economic Indicators
We saw CAD trading in proximity to the 1.4200 level against the USD in recent sessions, down by around 0.6% before sharply correcting. This bounce suggests sensitivity to broader macro flows, not just domestic considerations. Looking ahead, we’ll be watching economic data from the US very closely. Inflation prints are due out shortly — the CPI and PPI — and shifts here could carry increased weight.
The thinking is straightforward: should inflation surprise to the upside, the Federal Reserve may be prompted to lean back toward restraint, limiting any scope for cutting rates in the near term. That outcome might not help the loonie much, especially if Canadian economic numbers fail to impress.
Technically speaking, CAD remains confined between support around 1.4100 and resistance stretching up near 1.4300. These are not just geometric levels — they align with longer-term moving averages and represent price points where buying and selling activity becomes meaningfully different.
Rate expectations are a two-way street. If the Bank of Canada remains patient while the US inches closer to further hikes or opts to hold at elevated levels, the widening interest rate differential could nudge capital flows back into North America but away from CAD.
As for commodities, global crude benchmarks are another thread in this story. Rising oil prices tend to strengthen CAD, thanks to Canada’s position as a net energy exporter. But this relationship is not always immediate or tidy. Other domestic indicators, particularly related to housing, jobs, and consumer spending, are equally vital in shaping the central bank’s next move.
Inflation data from Canada, when next released, must be appraised with attention to whether momentum is gathering or easing. Accelerating prices would ordinarily pressure the Bank of Canada to act more assertively, likely supporting the loonie. But persistent softness in core demand might give them leeway to wait and preserve existing conditions for now.
Instruments priced off forward rate expectations are already showing a preference for sitting on the sidelines. Volatility has picked up, but so far options markets aren’t pricing in any fireworks. That could change quickly if inflation surprises artisans and more voices begin calling for shifts in monetary direction.
We continue to monitor short-term data surprises and global sentiment. Pivots by either North American central bank will not be made in a vacuum — and cross-asset pricing, particularly energy and credit markets, will likely hold clues about what’s ahead for CAD positioning.
