- USD/CAD regains positive traction on Thursday and draws support from a combination of factors.
- Retreating Oil prices undermines the Loonie and acts as a tailwind amid reviving USD demand.
- Traders now look to the US monthly Retail Sales and Jobless Claims data for short-term impetus.
The USD/CAD pair builds on the overnight bounce from the 1.4300 mark, over a one-week low and gains strong follow-through positive traction on Thursday. The intraday move up remains unabated through the first half of the European session and lifts spot prices to a fresh daily high, around the 1.4385 region in the last hour.
Crude Oil prices drift lower amid some profit-taking following the recent sharp rise to the highest level since July 2024, which is seen undermining the commodity-linked Loonie. Apart from this, the emergence of some US Dollar (USD) dip-buying, bolstered by growing acceptance that the Federal Reserve (Fed) will pause its rate-cutting cycle later this month, turn out to be a key factors acting as a tailwind for the USD/CAD pair.
Meanwhile, the US Producer Price Index and Consumer Price Index (CPI), released on Tuesday and Wednesday, respectively, pointed to signs of abating inflationary pressures. This, in turn, suggests that the Fed may not necessarily exclude the possibility of cutting rates further by the end of this year, which led to the overnight sharp decline in the US Treasury bond yields and might keep a lid on any further USD move up.
Furthermore, easing fears about US President-elect Donald Trump's disruptive trade tariffs remains supportive of the upbeat market mood. This might further hold back the USD bulls from placing aggressive bets and cap gains for the USD/CAD pair. Traders now look to the US economic docket – featuring monthly Retail Sales, the usual Weekly Initial Jobless Claims and the Philly Fed Manufacturing Index – for a fresh impetus.
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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