The USD/CAD pair continues to weaken for a second straight session, trading near 1.4010 during Monday’s European hours. The Canadian Dollar (CAD) is gaining ground against the US Dollar (USD), supported by stronger domestic labor market data, increased caution surrounding the Bank of Canada’s (BoC) policy outlook, and higher crude oil prices.
Stronger Canadian Labor Data Boosts CAD
According to Statistics Canada, the Unemployment Rate fell to 6.9% in October from 7.1% in September, defying market expectations for no change. Meanwhile, Net Employment rose by 66.6K to reach 21.02 million, following a robust increase the previous month.
The data reinforces optimism about Canada’s labor market resilience and reduces pressure on the BoC to accelerate monetary easing. Investors are increasingly betting that policymakers may pause rate cuts, given continued strength in employment and steady inflation expectations.
Oil Price Gains Support the Loonie
The commodity-linked Canadian Dollar is also benefiting from higher Oil prices, given that Canada is the largest crude exporter to the United States. West Texas Intermediate (WTI) crude extended its rally for a second consecutive day, trading around $60.20 per barrel.
Oil prices are rising amid optimism that a resolution to the US government shutdown is near — a development that could bolster demand from the world’s top oil consumer. Rising energy prices typically translate into increased export revenues for Canada, providing further support for the CAD.
US Dollar Stays Soft After Senate Advances Funding Deal
The US Dollar remains under mild pressure after the US Senate approved the initial phase of a government funding bill aimed at ending the shutdown. The measure passed with 60 votes, as several Democratic senators crossed party lines to support the deal.
The bill must still be approved by the House of Representatives and signed by President Donald Trump. Once enacted, it will provide back pay for federal employees, resume delayed state transfers, and fund certain government departments through January 30, while others would receive full-year allocations.
Although the progress has improved market sentiment, the USD has remained subdued as investors continue to weigh the broader implications for the US fiscal outlook and monetary policy trajectory.
Canadian Dollar Fundamentals
Key Drivers of the CAD:
The Canadian Dollar (CAD) is influenced by a combination of BoC policy decisions, oil price movements, domestic economic data, and global risk sentiment. As a commodity-linked currency, the CAD often strengthens when oil prices rise and risk appetite improves.
Bank of Canada Policy:
The BoC sets interest rates with the primary goal of maintaining inflation between 1% and 3%. Higher rates typically support the CAD by attracting foreign investment, while rate cuts can weaken it. The bank can also use quantitative tightening or easing to adjust liquidity — the former being CAD-positive and the latter CAD-negative.
Oil Prices and Trade Balance:
Oil is Canada’s largest export. Rising oil prices increase foreign demand for Canadian dollars to purchase Canadian crude, improving the country’s trade balance and strengthening the currency. Conversely, falling oil prices tend to weigh on the CAD.
Inflation and Economic Data:
Higher inflation generally prompts the BoC to raise rates, supporting the CAD. Strong macroeconomic indicators such as GDP growth, PMI data, employment, and consumer sentiment further reinforce the currency’s value by signaling robust economic conditions.
In summary:
The USD/CAD pair is drifting lower toward the 1.4000 mark as the Canadian Dollar benefits from strong labor data, higher oil prices, and expectations that the BoC will maintain a cautious stance on policy easing. Meanwhile, the US Dollar remains soft following progress on a government funding deal.
Unless USD demand recovers meaningfully, the pair could continue testing support near 1.4000, with potential downside targets at 1.3960 and 1.3900.
