USD/CAD surged to fresh three-month highs, trading around 1.3960, with the Canadian Dollar (CAD) extending its decline against the US Dollar (USD) for a seventh consecutive day, despite a softer Greenback. The US Dollar Index (DXY) pulled back to 100.17 after reaching ten-month highs of 100.64 earlier in the day, as technical factors and easing geopolitical risk sentiment weighed on demand. However, geopolitical risks remain elevated, with Iran’s Islamic Revolutionary Guard Corps (IRGC) warning of potential retaliation against US companies in the region starting April 1, following recent attacks. The ongoing US-Israel conflict with Iran has pushed energy prices higher, contributing to sustained pressure on the CAD, as concerns mount that elevated energy costs could dampen domestic demand and slow economic growth in Canada [1].
Canada’s January Gross Domestic Product (GDP) rose by 0.1% month-over-month, slightly above expectations for a flat reading and marking a slowdown from December’s 0.2% expansion. Preliminary estimates suggest real GDP increased by 0.2% in February, indicating a modest pickup in activity and keeping growth broadly in line with the Bank of Canada’s 1.8% projection for Q1 outlined in its January Monetary Policy Report [1][2][3]. RBC economists note that goods-producing industries outperformed in January, while services remained flat. Temporary factors, such as auto plant shutdowns, weighed on manufacturing, but stronger energy production and construction offset these declines. Retail volumes also rose, signaling continued resilience in consumer spending [3].
TD Securities analysts highlight that USD/CAD has been resilient despite stronger Canadian GDP data, as month-end and quarter-end Dollar demand offsets other forces. The pair has broken above its mid-January highs, with 1.40 emerging as the next key resistance level. While the upside surprise in January GDP introduces some upside risk to prior forecasts, TD notes it is not enough to validate markets priced for nearly 50bps of tightening by December. Labour market headwinds and softer core inflation momentum give the Bank of Canada more incentive to stay on the sidelines, with TD expecting the next rate hike in 2027Q1 [2]. RBC economists similarly expect the policy rate to remain on hold, as officials await greater clarity on elevated oil prices and their impact on inflation [3].
In the US, JOLTS Job Openings fell to 6.882 million in February from 7.24 million in January, slightly below expectations of 6.92 million. US Conference Board Consumer Confidence rose to 91.8 in March, beating forecasts of 87.9 and improving from 91 in February [1].
CONCLUSION
USD/CAD has reached its highest levels since December, driven by resilient USD demand and modest Canadian GDP growth that exceeded expectations. Analysts from TD Securities and RBC expect the Bank of Canada to maintain its policy rate, citing ongoing labour market and inflation concerns, while market participants eye 1.40 as the next resistance level. Elevated geopolitical risks and oil prices continue to weigh on the CAD, suggesting persistent volatility ahead.