The USD/CAD pair is trading flat near 1.4060 in early European hours on Thursday, with traders adopting a cautious stance ahead of the delayed US September Nonfarm Payrolls (NFP) report. Meanwhile, softer crude oil prices are weighing on the Canadian Dollar (CAD) and helping the pair remain supported.
US NFP Data in Focus
The US Bureau of Labor Statistics (BLS) will publish the long-awaited September employment report on Thursday after delays caused by the 43-day government shutdown. Economists are forecasting:
- Job additions: ~50,000
- Unemployment Rate: 4.3% (unchanged)
A weaker-than-expected print could signal a slowing labor market and increase the likelihood of a Federal Reserve (Fed) rate cut at the December meeting. Such an outcome might pressure the US Dollar.
Market expectations for a December 25 bps cut have already decreased sharply. According to the CME FedWatch Tool, the probability now stands near 33%, down from 63% just one week ago.
Lower Oil Prices Weigh on the Canadian Dollar
Crude oil prices retreated following reports that the US has proposed a plan aimed at ending the Russia-Ukraine conflict. The decline in oil prices is negative for the CAD, given Canada’s role as the largest crude exporter to the US. When oil prices fall, the value of Canada’s export revenues declines, typically dragging the Loonie lower.
This pressure on the CAD provides short-term support for USD/CAD.
Canadian Dollar FAQs (Summary)
What drives the Canadian Dollar?
Key influences on CAD include:
- Bank of Canada (BoC) interest rates
- Oil prices, Canada’s largest export
- Domestic economic performance and inflation
- Trade Balance
- Overall market risk sentiment
- Health of the US economy, Canada’s biggest trading partner
How does the BoC affect CAD?
Higher BoC interest rates generally support the Canadian Dollar. Quantitative tightening boosts CAD, while quantitative easing weighs on it.
How does oil impact CAD?
As a major oil exporter, higher oil prices typically strengthen CAD, while lower prices weaken it.
Does inflation influence CAD?
Higher inflation can push the BoC toward rate hikes, which often lift CAD by attracting foreign investment.
Do economic indicators matter?
Yes — strong GDP, employment, and PMI data support CAD, while weaker data tends to drag it lower.
