USD to CAD Surges as American Manufacturing Rebounds and Oil Prices Decline

The Canadian Dollar weakens significantly against the US Dollar in recent trading sessions, with USD to CAD climbing to approximately 1.3676, marking a daily gain of roughly 0.44%. This movement reflects a confluence of bullish factors for the Greenback and bearish forces for the Loonie, signaling important implications for anyone calculating 42 USD to CAD or monitoring broader currency dynamics in North America.

Manufacturing PMI: The Engine Behind USD Strength

Both North American economies released manufacturing data that painted starkly different pictures. The US Institute for Supply Management (ISM) Manufacturing PMI surged to 52.6 in January, a dramatic recovery from December’s 47.9 and well above market expectations of 48.5. This improvement proved particularly broad-based: the Employment Index rebounded to 48.1 from 44.9, while the New Orders Index jumped impressively to 57.1 from 47.7—marking the first expansion since August and the strongest reading since February 2022. Even the Prices Paid Index climbed to 59.0, slightly below forecasts but still elevated.

The S&P Global Manufacturing PMI mirrored this strength, edging up to 52.4 from 51.9. These robust US figures allowed the Greenback to extend its recovery, with the US Dollar Index (DXY)—which measures the Dollar’s strength against a basket of six major currencies—trading near 97.62, approaching a one-week peak. For those tracking USD to CAD movements, this Dollar strength directly translates to favorable exchange rates for USD holders.

On the Canadian side, however, the picture remains more subdued. S&P Global’s Manufacturing PMI for Canada rose to 50.4 from 48.6, signaling only a tentative return to expansion. According to Paul Smith, Economics Director at S&P Global Market Intelligence, Canada’s manufacturing sector “started the new year on a more positive footing” following a challenging 2024, with output stabilizing after nearly a full year of contraction. While confidence improved and jobs growth resumed for the first time in 12 months, these gains pale in comparison to the American manufacturing resurgence.

Oil Prices: The Crucial Factor for Canadian Dollar Performance

The downward pressure on the Canadian Dollar intensifies amid falling crude prices, a particularly significant development given Canada’s status as one of the world’s largest oil exporters. West Texas Intermediate (WTI) crude trades around $61.78 per barrel, down more than 5.5% on the day, directly weighing on the commodity-linked Loonie.

This relationship between oil and the Canadian Dollar cannot be overstated. Since petroleum represents Canada’s largest export, oil price movements have an immediate and pronounced impact on CAD valuation. Rising crude prices typically boost CAD demand, while falling prices apply direct downward pressure. In this instance, the sharp decline in WTI means that even if Canadian economic data were stronger, the currency would still face headwinds. For those calculating equivalent values like 42 USD to CAD, lower Canadian Dollar valuations make such conversions less favorable for those exchanging from CAD to USD.

Federal Reserve Policy Shifts Support the Greenback

Additional support for USD comes from shifting perceptions about Federal Reserve policy direction. US President Donald Trump nominated former Fed Governor Kevin Warsh to succeed Fed Chair Jerome Powell when Powell’s term concludes in May. Market participants view Warsh as a more institutional and policy-focused choice than alternative candidates, reducing concerns that monetary policy could be compromised by political pressures and Trump’s repeated calls for rate cuts.

This policy clarity provides the Greenback with a psychological boost and signals potential continuity in monetary discipline. When markets gain confidence in a central bank’s independence and commitment to price stability, the currency typically benefits. The appointment uncertainty has now cleared somewhat, allowing investors to price in a more hawkish Fed scenario compared to worst-case alternatives.

What Drives Canadian Dollar Movements: A Broader Perspective

Several key factors determine Canadian Dollar performance beyond the immediate headlines. The Bank of Canada’s (BoC) interest rate decisions form the foundational pillar—higher rates generally support CAD by attracting capital inflows. The BoC maintains its mandate of keeping inflation within a 1-3% target band, adjusting rates accordingly.

Oil prices, as discussed, remain paramount. Canada’s export-dependent economy means crude valuations translate directly into currency strength. Trade Balance—the difference between export and import values—also matters significantly. A positive balance supports CAD, while deficits weigh against it.

Economic health indicators including GDP, PMI readings, employment figures, and consumer sentiment all influence CAD direction. Strong economic data attracts foreign investment and potentially prompts the BoC to raise rates, both CAD-positive outcomes. Conversely, weak data typically depresses the currency.

Additionally, risk sentiment affects the Canadian Dollar substantially. During risk-on environments where investors pursue higher-yielding assets, CAD generally benefits. Risk-off periods, when investors flee to safe-haven currencies, can pressure CAD despite its commodity-backing.

The US economy’s health remains crucial as well, given that America represents Canada’s largest trading partner. American interest rates, growth trajectory, and Fed policy all reverberate through Canadian currency valuations.

Looking Ahead: Labor Market Data Will Define Near-Term Direction

The immediate focus shifts to Friday’s labor market releases, with both the US Nonfarm Payrolls (NFP) report and Canada’s employment data set to drive near-term USD to CAD trading. These figures will either reinforce or challenge the current narrative of American strength versus Canadian weakness.

For traders and those monitoring 42 USD to CAD or similar conversions, understanding these fundamental drivers—manufacturing momentum, energy prices, central bank policies, and labor market health—provides essential context for currency movements. The coming weeks will likely see continued volatility as markets digest these competing forces and position accordingly.