Canadian Dollar tests fresh multi-month highs to kickstart June markets
- The Canadian Dollar briefly tested a fresh six-month high against the Greenback on Monday.
- June market trading kicked off with a fresh bout of US selling pressure as tariff concerns weigh on US sentiment.
- The BoC’s latest rate call, slated for this week, is expected to see a hold on rates for now.
The Canadian Dollar (CAD) caught a fresh bid against the US Dollar (USD), with June’s market window kicking things off with a fresh six-month peak in intraday Loonie bids against the Greenback. The Trump administration has hit high gear on tariff moves, sparking a fresh round of risk aversion that is keeping the US Dollar under pressure.
The Bank of Canada’s (BoC) latest rate call is slated for Wednesday. The BoC is broadly expected to slow down its frenzied pace of rate cutting, with policymakers expected to hold off on further rate trims in June. On the US side, the Trump administration has imposed an arbitrary deadline of this Wednesday for trading partners to deliver their best deals to Trump’s desk, or risk facing April’s “reciprocal tariffs” getting re-imposed in July.
Daily digest market movers: Ongoing trade tensions give the Canadian Dollar a fresh leg up
- The Canadian Dollar saw its highest close against the US Dollar in six months, keeping the USD/CAD pair trapped near 1.3700.
- The ongoing legal battle over Trump’s tariffs has deepened, after the US Court of International Trade petitioned the federal appeals court to strike down Trump’s sweeping tariffs until Trump’s appeal of the USCIT ruling is finished.
- The Trump administration, facing obstacles from the courts, has kicked tariff action into high gear.
- Trump has announced a doubling of tariffs on all imports of steel into the US, pushing the import tax from 25% to 50%. The US is an aggregate importer of steel, and will likely be forced to pay higher prices across the board as US industry has no alternatives but to face increased import costs head on.
- The Trump administration is reportedly preparing to tell trading partners that they have until Wednesday to deliver their best trade deal offer to the Trump team. With no concrete trade deals on the table, this is unlikely to produce meaningful results.
Canadian Dollar price forecast
The Canadian Dollar briefly tested fresh six-month lows on Monday, kicking off the June trading month on a high note. However, a near-term floor supporting the Greenback remains in place, keeping USD/CAD bolstered on the high side of 1.3700 for the time being. Still, the Canadian Dollar eked out its highest close against the US Dollar since last October, and USD/CAD is poised for a continued push to the low end.
USD/CAD daily chart
Canadian Dollar FAQs
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.