Canadian Dollar flubs bullish momentum, but pumps the brakes on losses
- The Canadian held steady near the 1.3700 technical handle against the US Dollar on Wednesday.
- A near-term bullish twist in Loonie bids fizzled, but downside momentum remains limited for now.
- CAD traders left with little Canadian economic data to chew on until mid-tier GDP figures on Friday.
The Canadian Dollar (CAD) snapped a meager two-day win streak against the US Dollar (USD) on Wednesday. The Loonie pared limited gains against the Greenback, but held steady near the 1.3700 handle during the midweek market session.
Loonie traders remain in a lurch as CAD-centric economic data remains limited following this week’s Canadian Consumer Price Index (CPI) inflation print that failed to impress anybody. Mid-tier monthly Gross Domestic Product (GDP) figures are slated for Friday, but are unlikely to have much impact.
Daily digest market movers: CAD holds steady despite running out of bullish momentum
- The Canadian Dollar flubbed a bullish recovery against the Greenback, holding near recent lows.
- The USD/CAD pair is stuck to the 1.3700 handle as momentum drains out of the charts.
- According to reporting, Russia will be seeking to increase Crude Oil output alongside the rest of the extended Organization of Petroleum Exporting Countries (OPEC), also known as OPEC+.
- Increases to global Crude Oil output could depress barrel prices, putting further downside pressure on the Loonie.
- Canadian GDP, due on Friday, is expected to slump to a flat 0.0% MoM in May.
Canadian Dollar price forecast
The Canadian Dollar’s near-term bullish recovery has come to an abrupt end, finding the USD/CAD pair skidding across the top end of a descending range. USD/CAD remains pinned to the 1.3700 handle for the time being, but technical oscillators are rotating out of oversold territory, implying the Greenback could be poised for a fresh bull run against the Loonie.
USD/CAD daily 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.