Canadian Dollar clings to daily gains amidst risk-on mood


 

  • Canadian Dollar picks up with the USD losing ground in a risk-on session.
  • Investors are looking for the sidelines ahead of Wednesday’s US CPI and BoC rate decision.
  • USD/CAD keeps its positive trend intact with CAD recovery attempts limited.

The Canadian Dollar (CAD) is trading moderately higher on Monday, extending the rebound from the year-to-date lows after Friday’s upbeat Ivey PMI offset the negative impact of upbeat US Nonfarm Payrolls. A modest appetite for risk on a very calm weekly opening is allowing some US Dollar pullback, ahead of key macroeconomic data this week.

The US economy created far more jobs than expected in March, while wage growth moderated, although it is still at levels inconsistent with the Federal Reserve’s (Fed) 2% core inflation target for price stability. Last week, Fed officials hinted at a hawkish demeanor on the back of the recent data, which is expected to keep the US Dollar’s downside attempts limited.

Investors, however, are looking for the sidelines on Monday, awaiting the US CPI figures on Wednesday to check whether the recent uptick on inflation is an exception or a structural trend. Also on Wednesday, the Bank of Canada (B0C) will release its monetary policy decision. There is a minor risk of an unexpected rate cut that would send the CAD tumbling.

Daily digest market movers: USD/CAD ticks up in a quiet market

  • The Canadian Dollar barely moves on Monday, still paring some losses after having hit four-month lows on Friday.
     
  • The highlight of the week is the US CPI due on Wednesday. US headline inflation is expected to have increased 0.3% and 3.4% from a 0.4% monthly increment and a 3.2% year-on-year reading in February.
     
  • The core CPI is seen easing to 0.3% in March, from 0.4% in February, with the yearly rate cooling to 3.7% from 3.8%.
     
  • Also on Wednesday, the BoC is expected to leave its benchmark index unchanged at 5%. The main interest will be on any hints toward the timing of the first rate cut.
     
  • On Friday, US Nonfarm Payrolls increased by 303K in March from 270K in February, well above the 200K forecasted by market experts.
     
  • Average Hourly Earnings increased at a 0.3% monthly pace and 4.1% YoY from 0.2% and 4.3%, respectively, in February.
     
  • Canadian Ivey Purchasing Managers Index has improved to 57.7, its best reading over the last 12 months, from 53.9 in February.
     

Canadian Dollar price this month

The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies this month. Canadian Dollar was the strongest against the Swiss Franc.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.60% -0.18% 0.41% -1.10% 0.25% -0.79% 0.34%
EUR 0.59%   0.41% 1.01% -0.50% 0.84% -0.19% 0.92%
GBP 0.18% -0.42%   0.60% -0.91% 0.42% -0.60% 0.51%
CAD -0.42% -1.01% -0.62%   -1.52% -0.18% -1.22% -0.09%
AUD 1.09% 0.49% 0.90% 1.49%   1.33% 0.30% 1.41%
JPY -0.25% -0.83% -0.44% 0.18% -1.32%   -1.03% 0.09%
NZD 0.78% 0.18% 0.60% 1.20% -0.32% 1.02%   1.11%
CHF -0.34% -0.93% -0.50% 0.09% -1.43% -0.08% -1.11%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Technical analysis: USD/CAD remains biased higher despite failure to break the channel top at 1.3645

Technical indicators show the US Dollar on a bullish trend, with the structure of higher highs and higher lows intact. The pair was rejected on Friday at the top of the ascending channel, now at 1.3645, but the ensuing Canadian Dollar rebound remains unable to extend past the main SMAs.

The pair has a support area at 1.3555, where the confluence of the 4-hour 50 and 100 SMAs are likely to hold bears off. Below here, the next targets are at 1.3485 and 1.3420. Resistances are at the mentioned 1.3645 and 1.3680.

USD/CAD 4-Hour Chart

USDCAD Chart

Canadian Dollar FAQs

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.

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.

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.

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.

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.

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

AUD/USD remains on the defensive near 0.6600 amid mixed Australian PMI, Chinese economic woes

AUD/USD remains on the defensive near 0.6600 amid mixed Australian PMI, Chinese economic woes

The AUD/USD pair trades in negative territory for the seventh consecutive day around 0.6610 on Wednesday during the early Asian session. The mixed flash Australia’s Judo Bank Purchasing Managers Index fails to boost the Aussie. Traders await the US preliminary S&P Global PMIs for June for fresh impetus. 

AUD/USD News

EUR/USD backslides in runup to key midweek data prints

EUR/USD backslides in runup to key midweek data prints

EUR/USD dipped one-third of one percent on Tuesday as investors knuckle down for the wait to a double-header of Purchasing Managers Index figures due from both the EU and the US on Wednesday.

EUR/USD News

Gold reconquers $2,400, lacks directional momentum

Gold reconquers $2,400, lacks directional momentum

Gold stages a rebound and trades above $2,400 on Tuesday after closing the fourth consecutive trading day in negative territory on Monday. The pullback seen in US Treasury bond yields help XAU/USD cling to modest daily gains despite the US Dollar's resilience.

Gold News

dYdX recovers compromised v3 platform hours after leaked sales attempt

dYdX recovers compromised v3 platform hours after leaked sales attempt

The dYdX team reported an attack on its decentralized exchange's version 3.0 platform on Tuesday. The breach came hours after a Bloomberg report revealed that the team could be planning to sell the v3 platform to intending buyers.

Read more

US S&P Global PMIs Preview: Economic expansion could struggle in July Premium

US S&P Global PMIs Preview: Economic expansion could struggle in July

On Wednesday, S&P Global will release advanced readings for the United States (US) Purchasing Managers Indexes (PMIs) for July, a monthly survey of business activity. The survey is anticipated to indicate that US economic activity in the private sector faced mixed trends during the current month.

Read more

Forex MAJORS

Cryptocurrencies

Signatures