USD/CAD flat lines above 1.3800 as traders await US Retail Sales release
- USD/CAD holds steady around 1.3815 in Friday’s early Asian session.
- US PPI rose 3.3% YoY in July, hotter than expected.
- Traders brace for the US Retail Sales data and the upcoming meeting between Trump and Putin later on Friday.
The USD/CAD pair trades flat near 1.3815 during the early Asian session on Friday. Traders await the release of US Retail Sales and the preliminary reading of the University of Michigan Consumer Sentiment gauge, which are due later on Friday.
Stronger-than-expected US economic data could provide some support to the US Dollar (USD) against the Canadian Dollar (CAD). The US Producer Price Index (PPI) rose 3.3% on a yearly basis in July, compared to the 2.4% increase recorded in June, the US Bureau of Labor Statistics reported Thursday. This reading came in better than the estimation of 2.5% by a wide margin.
Meanwhile, the annual core PPI climbed 3.7% in the same period, up from 2.6% in the previous reading. On a monthly basis, the PPI and the core PPI both increased by 0.9%. The US Initial Jobless Claims for the week ending August 9 fell to 224K. This figure was lower than the previous week of 227K (revised from 226K) and below the consensus of 228K.
Nonetheless, Thursday’s US economic data did not upset the case for a September rate cut from the US Federal Reserve (Fed). Traders still see a Fed rate reduction on September 17 as a near certainty, according to LSEG data.
Traders will closely monitor the upcoming meeting between US President Donald Trump and Russian President Vladimir Putin in Alaska later on Friday to discuss the Ukraine issue. Trump on Wednesday warned that Russia will face “very severe consequences” if Putin doesn’t agree to end the war in Ukraine during their meeting on Friday.
The uncertainty surrounding US-Russia peace talks could provide some support to crude oil prices in the near term. This, in turn, could underpin the commodity-linked Loonie. It’s worth noting that Canada is the largest oil exporter to the US, and higher crude oil prices tend to have a positive impact on the CAD value.
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
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
