Canadian Dollar rises on Monday as markets recover footing

The Canadian Dollar rose another quarter percent against the Greenback.
Canada has a fresh GDP update looming ahead later in the week.
Markets are recovering their composure after a Fed splurge last week.

Joshua Gibson FXStreet

The Canadian Dollar (CAD) is broadly higher on Monday, kicking off the new trading week with an across-the-board recovery thanks to easing bidding pressure in other categories rather than any bullish tilt within the CAD itself. The CAD rallied one quarter of one percent against the Greenback, tipping into a fresh multi-month high.

Canada remains absent from the economic calendar in any meaningful capacity until Friday. Canadian Gross Domestic Product (GDP) figures are due at the end of the week, but market flows are likely to get swamped out by a fresh print of US Personal Consumption Expenditure (PCE) inflation figures due at the same time.

Daily digest market movers

The CAD rallied across the board on Monday, extending recent gains against the Greenback into a fourth straight week.
CAD GDP figures are slated for Friday, with a quiet week on the cards in the meantime.
US Durable Goods Orders gave an unexpected surge on Monday, keep risk appetite well-bid and limiting a Greenback rally.
Despite topside risk flows, markets remain tepid as investors recover from a rate-cut splurge after Federal Reserve (Fed) Chairman Jerome Powell all but confirmed an initial rate cut on September 18.
US PCE inflation figures are due to drop on markets on Friday, and forecasts are currently expecting the pace of consumer inflation pressures to hold steady at current levels.

Canadian Dollar price forecast

The Canadian Dollar (CAD) has found a fresh bullish push against the Greenback on Monday, kicking off a fourth straight week of gains against the US Dollar. USD/CAD traded into its lowest bids since March of this year as the CAD continues to gain ground against the USD, extending a fundamentals-based tailspin down the charts even further below the 200-day Exponential Moving Average (EMA) at 1.3625.

USD/CAD has ground its way through most of early 2024’s congestion zone between 1.3600 and 1.3400. If short momentum is unable to remain on top of things, a resurgence in bidders could see the pair climb quickly back into July’s price range above 1.3600.

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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