Canadian Dollar churns on data-light Tuesday

The Canadian Dollar held steady in the face of improving US labor data.
Canada lacks impactful data until Friday’s wages and employment change figures.
US NFP net job additions loom ahead at the end of the week, overshadowing CAD data.

Joshua Gibson FXStreet

The Canadian Dollar (CAD) tread water on Tuesday, wrestling to either side of the day’s opening bids before settling in the midrange. The US Dollar saw some bidding action after US job openings numbers beat the street, and the Loonie is struggling to find much interest with a lack of noteworthy releases on the data docket this week.

Canada remains largely absent from the economic calendar this week, albeit with a smattering of low-tier releases around the midweek. Canadian wages and employment change figures are due on Friday, though the Canadian side of the data docket will be eclipsed by US Nonfarm Payrolls (NFP) figures due at the same time.

Daily digest market movers: Canadian Dollar lacks momentum amid tepid releases

The Canadian Dollar churned around the day’s opening bids before shedding around one-sixth of one percent late on Tuesday.
US JOLTS Job Openings rose more than expected, bolstering the healthy outlook of the US labor market.
Investors will be pivoting to key labor data throughout the week, including ADP Employment Change figures slated for Wednesday.
The latest US NFP data dump is due on Friday.
US NFP job additions will swamp out market impact from Canadian Net Change in Employment figures for November, also due on Friday.

Canadian Dollar price forecast

With the Canadian Dollar (CAD) at the mercy of broad-market flows into and out of the Greenback, the Loonie is set to continue grinding out chart paper near multi-year lows. USD/CAD remains buoyant above the 1.4000 handle, though the pair has yet to reclaim territory near last week’s spike into 55-month highs above 1.4150.

The Greenback’s one-sided bullish trend against the waffling Canadian Dollar has dragged the pair deep into overbought territory, and the Loonie is on pace to close lower against the US Dollar for all but two of the last ten consecutive trading weeks. However, long-term and position traders will note that USD/CAD is knocking on the high end of a long-term sideways pattern going back nearly a decade that only materializes when you zoom out to weekly candles or above.

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.

AUD/USD hangs close to monthly lows, still defends 0.7100 ahead of Fed decision

AUD/USD retains its negative bias for the third straight day, defending 0.7100 while trading close to a monthly low in Wednesday's Asian session on Wednesday. The US Dollar stands firm near a two-week high as the anticipated Fed rate hike and oil-driven inflation fears continue to push US bond yields to a multi-year high. Furthermore, escalating Middle East tensions benefit the safe-haven buck and weigh on the risk-sensitive Aussie.

USD/JPY holds firm above 155.00, awaits Fed policy announcements

USD/JPY climbs to a fresh one-week high above 155.00 in the Asian session on Wednesday amid a bullish US Dollar. Oil-driven inflation fears, along with the anticipated Fed rate hike, continue to support surging US bond yields. Moreover, rising US-Iran tensions underpin the USD's reserve currency status. The pair, however, remains below the mid-155.00s as bulls seem hesitant ahead of the Fed decision later today and the BoJ meeting, starting on Thursday.

Gold bounces to $4,350; focus on the Fed

Gold sets aside two daily declines in a row, gathering some composure and revisiting the $4,350 zone per troy ounce amid decent gains midweek. The precious metal’s recovery comes despite an acceptable advance in the US Dollar and declining US Treasuty yields prior to the anticipated rate hike by the Fed.

XRP Price Forecast: XRP clings to 50-day EMA support after CLARITY Act setback

Ripple (XRP) trades lower around $1.28 on Wednesday, as investors broadly assess the impact of the failed United States (US) Senate vote on the CLARITY Act and the upcoming Federal Reserve (Fed) monetary decision. The remittance token has trimmed early-week gains that tagged highs around $1.50 on Monday and now holds key moving-average support.

Federal Reserve set to raise interest rate after five meetings on hold

The United States (US) Federal Reserve (Fed) announces its interest rate decision on Wednesday, following another pivotal meeting that could provide key insights into the monetary policy outlook heading into the end of the year.

How Japan became the World's Banker and why that era may be ending

Japan's ultra-low interest rates helped finance trillions of dollars in global investments for more than a decade, making the Japanese Yen one of the world’s cheapest sources of funding. With the Bank of Japan expected to tighten policy again this week, that advantage may be entering a new phase. While most major economies raised interest rates, Japan remained the world's outlier.