- USD/CAD inches higher as traders adopt caution ahead of US Initial Jobless Claims and ISM Services PMI.
- The US Dollar received support from the improved US Treasury yields.
- BoC reduced interest rates by 25 basis points to 4.25% at September’s meeting held on Wednesday.
USD/CAD retraces its recent losses, trading around 1.3510 during the Asian hours on Thursday. The US Dollar (USD) remains solid as traders adopt caution ahead of the release of US ISM Services PMI and Initial Jobless Claims scheduled to be released later in the North American session.
Attention will shift to Friday’s US Nonfarm Payrolls (NFP) to gain more cues on the potential size of an expected rate cut by the Federal Reserve (Fed) this month.
The US Dollar Index (DXY), which measures the value of the US Dollar against six other major currencies, trades around 101.30. The Greenback receives support from improving 2-year and 10-year yields on US Treasury bonds standing at 3.76% and 3.75, respectively, at the time of writing.
However, the US Dollar faced challenges after the release of July's US JOLTS Job Openings, which fell short of expectations and indicated a further slowdown in the labor market. The number of job openings dropped to 7.673 million in July, down from 7.910 million in June. This marked the lowest level since January 2021 and was below the market expectation of 8.10 million.
On Wednesday, the Bank of Canada (BoC) lowered its benchmark interest rate by 25 basis points (bps) to 4.25%, as expected, at September’s meeting held on Wednesday. BoC Governor Tiff Macklem commented, “If inflation continues to ease broadly in line with our July forecast, further cuts to our policy rate are likely.”
Governor Macklem also noted that a 25 basis points (bps) reduction seemed appropriate and observed that the divergence with the US Federal Reserve on rates has not significantly affected the exchange rate.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD consolidates gains above 1.1100 ahead of key events
EUR/USD stays in positive territory above 1.1100 in the second half of the day on Monday. The upbeat risk mood and growing expectations for a dovish Fed outcome this week weigh on the US Dollar and help the pair hold its ground.
GBP/USD extends rally to 1.3200 area
Following Friday's choppy action, GBP/USD gathers bullish momentum and trades at a fresh 10-day high near 1.3200. Ahead of the Fed's and the BoE's policy announcements, the US Dollar stays under pressure, allowing the pair to push higher.
Gold consolidates gains near fresh all-time highs
Gold trades in a narrow range above $2,580 after touching a new record-high near $2,590 earlier in the day. The benchmark 10-year US Treasury bond yield holds above 3.6% ahead of the Fed meeting and makes it difficult for XAU/USD to find direction.
Five Fundamentals for the week: Fed overtowers pivotal week for Gold, stocks and the US Dollar Premium
The Fed's first rate cut stands out as economic uncertainty mounts. US Retail Sales and Jobless Claims are of high interest. Rate decisions by central banks in the UK and Japan are also pivotal.
European crypto fund founder calls Tether $118 billion scam
Founder of Cyber Capital, Europe’s oldest crypto fund, criticized Tether for their reserves and said there has been no audit since 2021. In a tweet thread on X, Justin Bons supports his stance on the stablecoin firm with statistics.
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.