The USD/CAD currency pair has fallen below the 1.3700 mark, trading around 1.3685 in the early Asian session on Monday. This decline marks the lowest level for the pair since December 30, 2025, driven largely by a broad-based weakening of the US Dollar (USD) and positive economic data from Canada.
Data released by Statistics Canada indicated that Canadian Retail Sales increased by 1.3% month-over-month in November, a significant improvement compared to the revised decline of 0.3% in October. Additionally, Retail Sales excluding automobiles surged by 1.7% in November, contrasting with a drop of 0.6% in the previous month. Both metrics surpassed market expectations, which had estimated a rise of only 1.2%.
In the geopolitical arena, US President Donald Trump has issued a warning of potential 100% tariffs on Canadian goods in the event that Canada moves forward with a trade agreement with China. In response, Canadian Prime Minister Mark Carney affirmed that Canada does not intend to seek a free trade deal with China, clarifying that the recent agreement aimed only to reduce tariffs in specific sectors that had been adversely affected.
Aaron Hurd, a senior portfolio manager at State Street Global, commented on the ongoing tensions between Carney and Trump, noting the upcoming USMCA negotiations slated for this summer. Hurd expressed concerns that unless there is a significant improvement in Canadian economic data, the Canadian Dollar (CAD) may remain stagnant, moving largely in accordance with the broader dollar trends.
Key Drivers of the Canadian Dollar
The Canadian Dollar is influenced by a variety of factors, including the interest rates set by the Bank of Canada (BoC), the price of oil, and overall economic health. As Canada”s largest export, fluctuations in oil prices directly affect the CAD”s value. Typically, rising oil prices bolster the CAD due to increased demand, while falling prices have the opposite effect.
Furthermore, inflation data plays a critical role in shaping perceptions of the CAD. While traditionally viewed as detrimental, inflation can lead central banks to raise interest rates, potentially attracting foreign investment and increasing demand for the currency. Macroeconomic indicators, such as GDP and employment figures, also contribute significantly to the CAD”s valuation.
In conclusion, the recent decline in USD/CAD can be attributed to robust Canadian retail performance and looming trade tensions, setting the stage for potential volatility in the currency pair as market participants await further economic data.
