The Canadian dollar recorded its biggest daily gain in over a month on Thursday, rising sharply against a weakening U.S. dollar as markets digested weaker-than-expected U.S. economic data and renewed concerns about the Federal Reserve’s leadership. The loonie’s advance comes ahead of a key domestic GDP release that could shape expectations for the Bank of Canada’s next policy move.
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Canadian Dollar Rallies on U.S. Weakness and Global Sentiment
The loonie climbed 0.7% to 1.3625 per U.S. dollar, or 73.39 US cents—marking its most substantial daily gain since May 23. The currency reached its strongest intraday level since June 17 at 1.3619, driven largely by broad-based weakness in the greenback rather than any domestic catalyst.
Traders attributed the sudden shift to growing uncertainty around US monetary policy. Reports emerged suggesting that President Donald Trump may be considering replacing Federal Reserve Chair Jerome Powell as early as September or October. The rumor triggered market jitters and eroded investor confidence in the Federal Reserve’s independence, contributing to a notable drop in the U.S. dollar.
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Weak U.S. GDP Revision Adds Pressure to the Greenback
Additional downward pressure came from revised U.S. GDP data, which showed the economy contracted at an annualized rate of 0.5% in the first quarter of 2025. This was a steeper decline than the initial estimate of 0.2%, further undermining the case for sustained economic resilience in the United States.
“The market is reacting to a double-whammy—disappointing GDP numbers and the potential politicization of the Fed,” said Amo Sahota, director at Klarity FX in San Francisco. “It’s a pure USD move today. But trend watchers will now look to see if Canadian GDP data confirms a slowdown or shows resilience.”
Eyes Turn to Canada’s GDP as Rate Decision Looms
Investors are now focusing on Canada’s April GDP report, scheduled for release Friday. While no month-over-month growth is expected, the data will be scrutinized closely for signs of economic strength or weakness that could influence the Bank of Canada’s rate trajectory.
Preliminary data released Thursday showed wholesale trade fell 0.4% in May, adding to other signals that Canada’s economy may be losing momentum. If GDP growth stalls or contracts, it could increase the likelihood that the central bank resumes interest rate cuts in its next policy meeting on July 30. Current market pricing suggests a nearly 40% chance of a rate cut.
Energy Prices and Bond Yields Influence Broader Market Mood
Oil prices, a key driver of the Canadian economy, offered modest support. Crude settled 0.5% higher at $65.24 a barrel, helping to underpin the loonie’s rally.
Meanwhile, Canadian government bond yields moved lower across the curve, echoing similar moves in U.S. Treasuries. The yield on Canada’s 10-year note fell 3.8 basis points to 3.323%, reflecting increased investor appetite for safer assets amid global uncertainty.
Conclusion: Loonie’s Momentum Could Continue
With the U.S. dollar under pressure and questions swirling around Fed leadership, the Canadian dollar is gaining strength at a pivotal time. If Friday’s GDP report shows resilience in the domestic economy, USD/CAD could be poised to break lower and test new 2025 lows.
However, any confirmation of economic softness could reignite rate cut bets, putting a cap on further gains for the loonie. Either way, the Canadian dollar is set to remain a currency to watch as geopolitical uncertainty and economic data shape the near-term outlook.