Canadian Dollar snaps win streak, heads back into the low end

The Canadian Dollar lost 0.4% to start the trading week.
Canada saw a better-than-expected print in PMI figures.
Despite upbeat data, the Loonie continues to struggle.

Joshua Gibson FXStreet

The Canadian Dollar (CAD) backslid another four-tenths of one percent against the Greenback on Monday. CAD traders pushed down the Loonie against the US Dollar despite an uptick in Canadian Purchasing Managers Index (PMI) figures for November as investors pivot to focus on this week’s US labor data dump that will culminate in another Nonfarm Payrolls (NFP) print on Friday.

Canada’s S&P Global Manufacturing PMI for November came in above expectations, printing at a nearly two-year high. However the upswing in manufacturing data has done little to stem the tide of middling economic reports from Canada in recent weeks, and broader markets shrugged at the one-off print.

Daily digest market movers: 21-month high in Canadian PMI sparks little interest in CAD

The Canadian Dollar lost 0.4% against the Greenback, keeping USD/CAD bolstered above 1.4000.
Canadian PMI figures for November rose to a 21-month high of 52.0, beating the forecast decline to 50.8 from October’s 51.1.
Despite the upbeat business activity survey results, the Loonie still shed weight against the US Dollar, falling back into familiar lows.
Broader markets are set for a week full of US labor preview data before Friday’s US NFP print.
Canadian labor and wages data also slated for Friday will get swamped out by US jobs numbers.

Canadian Dollar price forecast

With the Canadian Dollar (CAD) continuing to slump into the low side, USD/CAD has been pushed back into near-term highs. The Loonie-Dollar pair is catching intraday support just north of the 1.4000 handle, snapping a three-day win streak that saw the CAD gain comparatively little ground.

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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