Canadian Dollar rebounds despite PM Trudeau resignation
- The Canadian Dollar gained 0.5% on Monday as the Greenback eases.
- Canada’s Prime Minister has resigned from his post amid fierce criticism.
- CAD markets have responded positively for the time being.
The Canadian Dollar (CAD) caught some wind in its sales on Monday, lifted from recent lows by a market-wide easing in US Dollar flows. CAD markets were further bolstered following the resignation of Canadian Prime Minister Justin Trudeau, at least for the time being.
Canada’s PM Trudeau announced his decision to vacate his position as party leader of the incumbent Liberal party early Monday, leaving the Canadian government in a bit of a lurch as parliament must now prorogue until the Liberal party is able to choose a successor. Key Canadian economic data is due on Friday, but the actual release window will be eclipsed by the US Nonfarm Payrolls (NFP) jobs report due at the same time.
Daily digest market movers: Canadian Dollar lurches higher post-PM resignation
- Canadian Prime Minister Justin Trudeau has resigned as Liberal party leader following over nine years of service as the Prime Minister of Canada.
- Pressure on PM Trudeau to resign was exacerbated in December following Canadian Finance Minister Chrystia Freeland’s resignation, citing Canada’s lack of clear pushback to incoming US President Donald Trump’s tariff threats.
- The Canadian Parliament will now be prorogued until the end of March.
- In their months-long push to oust PM Trudeau, opposition parties within Canada forgot to figure out who would replace him.
- The Canadian Dollar added nearly six-tenths of one percent following the announcement.
Canadian Dollar price forecast
The Canadian Dollar’s bullish bounce to kick off the new trading week pushed price action on the USD/CAD pair back to the 1.4300 handle, but invigorated Loonie bulls weren’t able to hang onto the key technical level. The pair is back into the low side of recent congestion, but CAD is managing to hang onto some of its intraday gains.
The Loonie is struggling to find bidders and recover its stance after a plunge to multi-year lows against the Greenback in recent weeks, and bids continue to churn chart paper near the 1.4400 handle.
USD/CAD daily 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.
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.
