Canadian Dollar buckles further on Monday, declines another quarter percent

The Canadian Dollar extended its recent declines against the Greenback.
Bank of Canada rate call due on Wednesday, looming rate cut trims CAD.
The CAD is down over 3% against the USD since September.

Joshua Gibson FXStreet

The Canadian Dollar (CAD) shed another quarter of a percent against the Greenback at the start of the new trading week. The Loonie backslid into a fresh eleven-week low as CAD markets brace for a widely-anticipated 50 bps rate trim from the Bank of Canada (BoC) during the midweek market session on Wednesday.

Daily digest market movers

CAD traders continue to make a broad-market pivot out of the Loonie ahead of the BoC’s rate call on Wednesday.
The BoC is widely expected to trim interest rates by a further 50 bps in an effort to shore up decaying economic figures.
Fedspeak is a key driver in risk sentiment flows on Monday as key Fed officials make early-week appearances.
Read more:
Fed's Kashkari: I see modest cuts over the next quarters
Fed’s Logan: Gradual rate cuts on the cards if economy meets forecasts
US Retail Sales due Thursday to drive late-week Greenback market momentum.
Canadian Retail Sales figures due on Friday to serve as a post-rate cut signal of where the Canadian economy is headed in spite of moves from the BoC.

Canadian Dollar price forecast

The USD/CAD pair continues its bullish march, trading around 1.3833 on the daily chart after successfully breaching key resistance levels in recent sessions. The price has risen decisively above both the 50-day EMA at 1.3645 and the 200-day EMA at 1.3617, confirming bullish momentum. These moving averages are now acting as significant support levels, reinforcing the upward bias. With the pair trading near its recent highs, the next psychological resistance to watch is the 1.3900 level, followed by a potential retest of 1.4000 if momentum continues.

The MACD histogram continues to expand in positive territory, suggesting strong bullish momentum. The MACD line has crossed above the signal line, reinforcing the positive outlook. However, the price is approaching overbought conditions, so traders should be cautious of a potential short-term pullback or consolidation phase before the next leg higher. A failure to maintain momentum could lead to a correction toward the 1.3700 area, aligning with the 50-day EMA as a key support zone for buyers to re-enter.

USD/CAD daily chart

Canadian Dollar FAQs

What key factors drive the Canadian Dollar?

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

How do the decisions of the Bank of Canada impact the Canadian Dollar?

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

How does the price of Oil impact the Canadian Dollar?

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

How does inflation data impact the value of the Canadian Dollar?

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

How does economic data influence the value of the Canadian Dollar?

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.

Author

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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