The Canadian dollar has taken a stronger position against the US dollar this week. On September 4, 2026, USD/CAD stayed below the 1.3800 level as traders waited for key jobs data from both Canada and the United States.
The move has placed fresh focus on the Canadian dollar, also known as the loonie. The currency has found support from several factors, such as a more hawkish Bank of Canada view, a softer US dollar, and firm oil prices.
The USD/CAD pair was close to a two-week low on Friday. It also faced a sharp weekly loss after a fall from the 1.3940 area earlier in the week. That level was a three-week high for the pair.
For Forex traders, this move matters because USD/CAD can show changes in both US and Canadian policy views. A lower USD/CAD rate means one US dollar buys fewer Canadian dollars. In simple terms, that points to a stronger Canadian dollar.
USD/CAD Falls Toward 1.3800
The recent move in USD/CAD has been quite clear. The pair rose to around 1.3940 earlier this week but then lost ground. By September 4, it had moved below 1.3800 and stayed close to a two-week low.
The Bank of Canada played an important role in this move. The central bank kept its key interest rate at 2.25%, but its latest message was more firm than many traders had expected.
The bank also warned that more rate hikes may be needed if inflation stays high. This gave the Canadian dollar a fresh source of support.
The Bank of Canada has held its rate at 2.25% for 11 straight months. Yet its latest statement removed some of the softer language that had suggested the current rate was suitable for both inflation and economic growth.
That change matters because traders often react not only to the rate itself, but also to the message from a central bank.
Bank of Canada Takes a Firmer Tone
Canada’s central bank now faces a difficult balance. The economy has shown signs of strength, but inflation remains a concern.
Canada’s economy grew at an annual rate of 3.3% in the second quarter. At the same time, inflation rose to 3%, above the Bank of Canada’s 2% target.
Higher oil prices have added more pressure to prices. The bank has said that conflict in Iran has helped push energy costs higher. If oil prices stay high for a long time, inflation could remain above the central bank’s target.
The Bank of Canada has therefore left the door open for future rate hikes. Markets have already started to price in rate increases from December and more moves into next year. Some traders see as much as 100 basis points of hikes through 2027.
This view can help the Canadian dollar because higher Canadian rates may make Canadian assets more attractive.
Oil Prices Help the Loonie
Oil is another major factor for the Canadian dollar. Canada is a large oil producer, so higher crude prices can support the country’s trade position and improve demand for the currency.
Oil remained close to six-week highs on September 4. US-Iran tensions and tight global supply have helped keep crude prices firm.
This creates an important link between oil and USD/CAD.
When oil prices rise, the Canadian dollar can receive support. When crude prices fall sharply, the loonie can face more pressure.
The current oil backdrop has therefore helped the Canadian currency at a time when the US dollar also faces pressure from weaker rate hike expectations.
US Dollar Loses Some Support
The US dollar has faced its own problem this week. Federal Reserve Governor Christopher Waller gave a softer message on US rates, which reduced market expectations for a September rate hike.
Before his comments, traders placed the chance of a 25-basis-point rate hike at about 63%. That figure later fell to around 50%.
Waller said there were signs of disinflation and suggested that he could support steady rates if this trend continued.
That change helped push US Treasury yields lower and reduced some of the dollar’s support. The dollar index was near 99.08 on Friday, while the Japanese yen had gained more than 2% against the dollar for the week.
A weaker US rate outlook can also help the Canadian dollar against the greenback.
US And Canada Jobs Data Take Focus
The next major test for USD/CAD comes from jobs data.
The United States is due to release its August employment report on September 4. Economists expect a gain of about 56,000 jobs after a decline in the previous month.
The US report can have a strong effect on the dollar because the Federal Reserve pays close attention to the labor market.
A weak US jobs report could reduce the chance of a September rate hike even more. That could put extra pressure on the US dollar and help USD/CAD move lower.
A strong report could give the dollar some relief. It could also push rate hike expectations higher again.
Canada also has jobs data due on the same day. That makes the report especially important for USD/CAD because traders will have fresh information about both economies.
The pair could react sharply if one country’s data shows a clear difference in economic strength.
Trade Risks Remain
The Canadian dollar still faces risks despite its recent strength.
Trade relations between Canada and the United States remain a major concern. A Reuters poll of 32 foreign exchange analysts showed that the Canadian dollar may weaken by 0.4% to 1.39 per US dollar over three months.
However, the same poll showed a more positive view for the longer term. Analysts expect the Canadian dollar to rise about 1.8% to 1.36 per US dollar over 12 months if US-Canada trade tensions ease.
Recent US tariffs on about $20 billion of Canadian imports have added pressure to the near-term outlook.
This means the Canadian dollar has two different forces at work. Stronger Canadian policy and firm oil prices can help the currency, while trade risks can limit its gains.
What USD/CAD Could Do Next
The short-term direction of USD/CAD will depend on several key factors.
The first is US jobs data. A weak report could push the pair below recent support and give the Canadian dollar more room to rise.
The second is Canadian jobs data. Strong Canadian employment data could support expectations for future Bank of Canada rate hikes.
The third factor is oil. If crude prices stay firm, the loonie may receive more help.
The fourth factor is central bank policy. The Bank of Canada has shown a firmer tone, while the Federal Reserve has seen lower expectations for a September rate hike.
Together, these factors have created a better backdrop for the Canadian dollar.
Canadian Dollar Has Momentum
The Canadian dollar has entered September with a stronger tone against the US dollar. USD/CAD has moved from the 1.3940 area toward and below 1.3800, while the Bank of Canada has given markets a more hawkish policy message.
The official Bank of Canada data showed USD/CAD at 1.3789 on September 3, compared with 1.3896 on September 1. That is a clear move in favor of the Canadian dollar over the period.
Still, the path ahead is not certain.
US and Canadian jobs data can create sharp moves in USD/CAD. Oil prices can also change the outlook, while trade tensions remain a risk for Canada’s economy.
For now, the Canadian dollar has the upper hand. The key question is whether it can hold that advantage after the latest US and Canadian employment reports.
If the US data is weak and Canadian data is firm, USD/CAD could face more pressure. If US data surprises to the upside, the dollar could recover some lost ground.
For Forex traders, the 1.3800 area is now a key level to watch. The next move could depend on whether the market gets fresh reasons to favor the Canadian dollar or the US dollar.
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