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6 Mar 2025
USD/CAD weakens below 1.4350 as Trump delays Canada tariffs on autos
- USD/CAD trades in negative territory near 1.4335 in Wednesday’s late American session.
- The White House said Trump will delay Canada, Mexico tariffs on autos for one month.
- Private employers added just 77,000 jobs in February, weaker than expected, ADP noted.
The USD/CAD pair extends its decline to around 1.4335 during the late American session on Wednesday. The Canadian Dollar (CAD) strengthens against the US Dollar (USD) as investors weigh the prospects of Canada's receiving some relief from US tariffs. Later on Thursday, the US Initial Jobless Claims and Canadian Ivey Purchasing Managers Index will be released.
The White House said on Wednesday that US President Donald Trump is exempting automakers from newly imposed tariffs on Mexico and Canada for one month following the implementation of Donald Trump’s bespoke tariff strategy that imposed a 25% tariff on all goods imported from Canada and Mexico. The Loonie edges higher following these developments and creates a headwind for USD/CAD.
Furthermore, concerns over the US economy weigh on the Greenback. Private sector employment in the US grew by 77K in February, compared to the previous reading of 186K (revised from 183K), according to Automatic Data Processing (ADP) on Wednesday. This figure came in weaker than initial estimates of 140K.
On the other hand, the ongoing decline in crude oil prices on reports that OPEC+ will proceed with a planned oil output increase in April might undermine the commodity-link CAD and cap the downside for the pair. It’s worth noting that Canada is the largest oil exporter to the United States (US), and lower crude oil prices tend to have a negative impact on the CAD value.
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.