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USD/CAD jumps to near 1.3740 after strong US Retail Sales and lower jobless claims

  • USD/CAD rises to near 1.3740 as the US Dollar bounces back after upbeat US data.
  • US Retail Sales rose strongly by 1% and Initial Jobless Claims came in lower than expectations.
  • A sharp recovery in the Oil price continues to boost the Canadian Dollar.

The USD/CAD pair delivers a vertical upside move to near 1.3740 in Thursday’s New York session as the US Dollar (USD) recovers strongly. The US Dollar bounces back after the release of the stronger-than-expected United States (US) Retail Sales data for July and lower Initial Jobless Claims for the week ending August 9.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps above 103.00. The US Retail Sales report showed that sales at retail stores rose at a robust pace of 1% due to strong demand for automobiles from the estimates of 0.3%. In June, Retail Sales contracted by 0.2%, downwardly revised from a flat performance.

US Dollar PRICE Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.

 USDEURGBPJPYCADAUDNZDCHF
USD 0.44%0.03%1.21%-0.01%-0.20%0.28%0.80%
EUR-0.44% -0.41%0.74%-0.44%-0.72%-0.32%0.35%
GBP-0.03%0.41% 1.17%-0.03%-0.31%0.10%0.85%
JPY-1.21%-0.74%-1.17% -1.21%-1.41%-1.05%-0.32%
CAD0.00%0.44%0.03%1.21% -0.20%0.13%0.88%
AUD0.20%0.72%0.31%1.41%0.20% 0.39%1.15%
NZD-0.28%0.32%-0.10%1.05%-0.13%-0.39% 0.75%
CHF-0.80%-0.35%-0.85%0.32%-0.88%-1.15%-0.75% 

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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Retail Sales are a key measure of households’ spending that eventually propels consumer inflation. Higher value and volume of sales receipts at retail stores exhibits robust spending by individuals. Upbeat Retail Sales have dampened market speculation for the Federal Reserve (Fed) to deliver a 50-basis point (bps) interest-rate reduction in the September. However, firm market expectations for the Fed pivoting to policy-normalization in September remain intact.

Meanwhile, Individuals claiming jobless benefits for the first time came in lower at 227K than estimates of 235K and the prior release of 234K, upwardly revised from 233K.

On the Canadian Dollar (CAD) front, upbeat Oil prices continue to act as major cushion for the Lonnie. The Oil prices have recovered strongly after a two-day correction on expectations that rate cuts from the Fed will boost fuel consumption. It is worth noting that Canada is the leading exporter of Oil to the United States and higher Oil prices result in significant foreign inflows to the former.

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

Sagar Dua

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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