Key Moments:
- USD/CAD trades around 1.3790 on Friday, pausing a four-session slide as the US Dollar steadies.
- Markets now price a 95% chance of a Fed rate cut in December, even after core PCE inflation rose to 2.8% in November.
- WTI crude sits near $59.60 per barrel after falling more than 2%, supported by Saudi Aramco CEO comments on strong demand.
USD/CAD Holds Firm Ahead of US PMI Release
USD/CAD traded around 1.3790 during Friday’s European session, ending a four-day slide. The pair gained support as the US Dollar recovered from earlier weakness.
In addition, easing US-EU tensions helped lift sentiment. Traders now await the preliminary S&P Global US PMI data due later on Friday.
US-EU Tensions Cool After NATO Framework Agreement
Dollar sentiment improved after geopolitical risk eased. President Donald Trump had threatened tariffs on European countries that opposed his Greenland plan.
However, he later shifted course after securing a NATO framework agreement. The deal could open the door to a broader US-NATO arrangement.
That said, the exact details remain unclear. Markets are now speculating about possible provisions on mineral rights or missile deployments.
Fed Policy Expectations Firm Despite Higher Core PCE
Core PCE inflation, the Fed’s preferred gauge, rose 2.8% in November. That followed a 2.7% gain in October and matched expectations.
Still, the Fed is widely expected to hold rates steady next week. Meanwhile, the CME FedWatch Tool shows a 95% chance of a rate cut in December.
| Indicator / Expectation | Latest Detail |
|---|---|
| Core PCE (annual, November) | 2.8% (vs. 2.7% in October; matched expectations) |
| Fed rate decision (next meeting) | Fed widely expected to hold rates steady |
| Market-implied probability of December rate cut | 95% (CME FedWatch Tool) |
Oil Recovery Offers Support to Canadian Dollar
Oil also helps shape USD/CAD, since Canada is the largest crude supplier to the United States. A sustained rise in prices could strengthen the Canadian Dollar and weigh on the pair.
WTI crude is rebounding after a drop of more than 2%. It traded around $59.60 per barrel at the time of writing.
Prices rose after Saudi Aramco’s CEO downplayed supply concerns. He pointed to strong demand in emerging markets and said global oil consumption hit record levels last year. He also expects demand to rise further in 2026.
Key Drivers of the Canadian Dollar
The Canadian Dollar reacts to several factors, including interest rates, commodity prices, and trade flows.
Interest Rates and Bank of Canada Policy
The Bank of Canada influences CAD mainly through its policy rate. That rate affects borrowing costs across the economy. In general, higher interest rates tend to support the Canadian Dollar.
The central bank can also use quantitative easing or tightening to shape conditions. QE usually weakens CAD, while QT often strengthens it.
Oil Prices and Trade Balance Effects
Oil is Canada’s biggest export, so crude prices strongly affect CAD. When oil rises, Canada earns more from exports, which can improve its trade balance.
As a result, higher oil prices often strengthen the Canadian Dollar. Conversely, falling oil prices usually weigh on CAD.
Inflation, Macro Data, and Risk Sentiment
Inflation trends also influence CAD through interest rate expectations. Higher inflation can push central banks to raise rates, which can attract foreign capital and boost the currency.
Other data like GDP, PMIs, jobs, and consumer surveys also matter. Strong releases usually support CAD, while weak data can drag it down.
Risk sentiment is another key driver. In risk-on markets, investors favor higher-yielding assets, which often helps CAD. In risk-off periods, they shift to safe havens, which can reduce demand for the Canadian Dollar.
Finally, the US economy remains the main external influence on CAD because the United States is Canada’s largest trading partner.
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