The Canadian dollar strengthened against most major currencies on Thursday, driving USD/CAD down toward 1.37 and putting the loonie among the top performers in the G10 group, according to data reviewed by Rabobank. The move was fuelled by yield dynamics and firmer commodity prices, which improved the relative appeal of the Canadian currency versus the U.S. dollar.
Market moves and yield backdrop
Oil prices advanced alongside a modest rise in U.S. Treasury yields. The two-year U.S. note closed 1.2 basis points higher, while the ten-year yield rose 2.2 basis points. Despite the back-up in yields, the U.S. dollar ranked only as the third-strongest G10 currency on the day, while the loonie added a further 0.28%.
The gains underscored continued demand for higher-yielding assets and suggested that, at least in the near term, the combination of solid returns and commodity support remains a key driver for the Canadian dollar.
Trade tensions in focus ahead of USMCA review
Trade policy developments added another layer of uncertainty. Trade Minister Dominic LeBlanc confirmed that Canada is working to address long-running disputes tied to its supply-managed dairy system ahead of the scheduled review of the United States–Mexico–Canada Agreement (USMCA).
LeBlanc said diplomatic discussions will resume in Mexico City next week. His comments indicated a preference for a broad, comprehensive arrangement rather than a piecemeal resolution of individual issues, implying that negotiations may be lengthy and complex.
U.S. officials have repeatedly flagged Canada’s dairy regime as a major point of contention, keeping trade frictions in the spotlight and posing a potential risk factor for the currency over the coming months.
Key Canadian data on deck
Markets are also preparing for several domestic data releases that could shape sentiment toward the loonie:
- March housing starts are expected to rise to about 258,000 units, up from 250,900 previously.
- February international securities transactions will be reported, following strong inflows of CAD 46.73 billion in January, which highlighted robust foreign demand for Canadian assets.
Traders will watch these figures for confirmation that higher yields and domestic resilience can sustain the currency’s recent outperformance against the U.S. dollar.
Support from commodities starts to fade
Beyond the latest upswing, the broader picture for commodities has turned less supportive. West Texas Intermediate crude futures have slipped toward USD 93 per barrel, falling about 1.05% on April 17 and eroding one of the earlier tailwinds for the loonie.
The weakening in oil prices suggests that further gains in the Canadian dollar may be harder to achieve unless other factors, such as data surprises or policy expectations, turn more favorable.
Domestic slowdown pressures policy outlook
Recent indicators from the Canadian economy point to a loss of momentum, particularly in housing. The Canadian Real Estate Association has sharply cut its 2026 home sales forecast, now expecting growth of only 1%, down from a prior estimate of 5.1%.
National home sales in March were flat on the month, and new listings declined by 0.2%, reinforcing signs of a cooling housing market. A softer real estate sector could eventually feed into the Bank of Canada’s policy calculus, potentially limiting the scope for the loonie to benefit from rate differentials if the outlook continues to deteriorate.
Technical levels underline fragile outlook
In foreign exchange markets, USD/CAD has been testing a key support band in the 1.3722–1.3733 range. A clear break below this zone would open the door to further Canadian dollar strength and additional downside in the pair.
On the upside, any rebound in USD/CAD is likely to encounter resistance near 1.3821, a level that traders see as an initial cap unless fresh catalysts emerge.
Mixed signals point to choppy trading ahead
The current backdrop combines firm, but no longer accelerating, commodity support; softening domestic data; and unresolved trade disputes ahead of the USMCA review. This mix points to a period of heightened fluctuation rather than a clean directional trend for the Canadian dollar.
Market participants are expected to adopt a more defensive stance, focusing on capital preservation until a clearer narrative emerges. Incoming data on international securities flows and headlines from the Mexico City trade discussions will be watched closely for signs of whether foreign appetite for Canadian assets is holding up and whether trade risks are intensifying or receding.
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