Canadian Dollar steadies at lower levels amid bright US data


 

  • Canadian Dollar keeps losing ground as US data beats expectations.
  • Strong US economic outlook, tight labour market put Fed easing hopes into question.
  • Fed Mester hints at rate cuts in 2024 but she does not specify any timing.

The Canadian Dollar (CAD) is being sold for the second day in a row on Tuesday as the Greenback consolidates gains, buoyed by strong US macroeconomic data. The strong rebound in February’s US Factory orders and the higher-than-expected JOLTS Job Openings add to evidence of a strong US economy and put the Federal Reserve’s (Fed) near-term easing plans into question.

Tuesday’s data confirms Monday’s picture of a strong manufacturing sector combined with a tight labour market. This “no-landing” scenario provides fresh reasons for Fed hawks to keep borrowing costs higher for longer and is pushing up US Treasury yields.

Fed Cleveland President Loreta Mester assured that the bank will cut rates in 2024 although she added that they might need more time to confirm that inflation trends are on the right pace. Later today San Francisco Fed CEO, Mary Daly, another hawk, will meet the Press. The highlight of the week, however, will be Investors will be waiting for Friday’s Nonfarm Payrolls Report.

Daily digest market movers: USD/CAD consolidates gains as US data casts doubt on Fed easing plans

  • Canadian Dollar has lost 0.3% in the last two days with the rally in Oil prices keeping the Loonie from further depreciation.
     
  • Fed's Mester assured that she expects rate cuts this year although she discard any move at May's meeting.
     
  • US Factory Orders increased 1.4% in February, following a 3.8% decline in January and beating expectations of a 1% gain.
     
  • At the same time, the US Bureau of Labor Statistics revealed that JOLTS Job Openings increased by 8.756 million in February from 8.748 million in January, above the market consensus of 8.74 million.
     
  • On Monday, the US ISM Manufacturing PMI increased to 50.3 in March from 47.8 in February, beating market expectations of a 48.4 reading.
     
  • Prices Paid in the manufacturing sector have surged to 55.8, their highest level since July 2022, and a positive contribution to inflationary trends.
     
  • Oil prices have reached levels beyond $85 for the first time since October. This is cushioning the Canadian Dollar’s reversal.

Canadian Dollar price today

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

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.28% -0.23% -0.01% -0.39% -0.01% -0.22% 0.25%
EUR 0.28%   0.06% 0.27% -0.10% 0.26% 0.05% 0.53%
GBP 0.21% -0.08%   0.20% -0.18% 0.19% -0.01% 0.46%
CAD 0.01% -0.26% -0.21%   -0.37% 0.00% -0.21% 0.27%
AUD 0.39% 0.11% 0.19% 0.38%   0.38% 0.17% 0.64%
JPY 0.02% -0.28% -0.21% 0.01% -0.35%   -0.21% 0.27%
NZD 0.22% -0.06% 0.01% 0.21% -0.15% 0.21%   0.47%
CHF -0.25% -0.53% -0.48% -0.27% -0.64% -0.27% -0.49%  

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: The USD has scope for rally to 1.3615 resistance area

The USD/CAD bounced up on Monday and is gaining bullish traction amid the favorable fundamental landscape. With US Treasury yields healing north, USD’s bearish attempts are expected to remain limited.

The pair remains moving inside a slightly bullish channel with the previous resistance at 1.3565 providing support. The next upside target is the resistance area at 1.3615, the 61.8% Fibonacci retracement of the late 2023 decline at 1.3630, and the channel top at 1.3635. Below 1.3565, the next support is 1.3520.

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.

 

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