Canadian Dollar sees gains on Tuesday as US inflation recedes in headline CPI
|- The Canadian Dollar is getting a leg up as markets turn down the Greenback.
- Canada sees little of note on the data docket this week.
- Loonie traders aren’t out of the US data woods yet, US PPI and Retail Sales come tomorrow.
The Canadian Dollar (CAD) is catching a bid thanks to a forecast miss on US Consumer Price Index (CPI) inflation figures. The data miss is sending broader markets into risk-on mode as market sentiment improves.
US CPI for October came in lower than markets had initially forecast, and the easing inflation datapoint is giving markets reason to hope that the Federal Reserve’s (Fed) “higher for longer” narrative on interest rates may not prove to be as long as previously thought.
Daily Digest Market Movers: Canadian Dollar finds a CPI-fueled rebound
- The CAD is climbing into a five-day high and its highest bids in a week thanks to the US CPI miss.
- October’s headline month-on-month US CPI came in at a flat 0.0% against the forecast 0.1%, 0.4% previous.
- Annualized CPI printed at 3.2%, down from the previous 3.7% and missing the forecast of 3.3%.
- CPI expectations are one forecast markets are eager to have missed as risk appetite surges.
- Inflation cooling faster than expected is helping investors climb back into riskier assets, including the Loonie.
- This week still sees hefty US data on the calendar, with Producer Price Index (PPI) and Retail Sales for October arriving on Wednesday
Technical Analysis: Canadian Dollar cracks 1.37 against US Dollar as markets flip risk-on
The Canadian Dollar (CAD) is heading below the 1.3700 handle against the US Dollar (USD), taking the USD/CAD pair down from the 1.3850 level for Friday.
Shorts on the USD/CAD will be looking to drag the pair back down towards the 50-day Simple Moving Average (SMA) near 1.3650. Longer-term support is coming from the 200-day SMA currently pushing into the high side of 1.3500.
Tuesday’s downturn on the USD/CAD chart is helping to solidify a potential lower high chart pattern, with a technical resistance zone building in from 1.3750 to 1.3800. Meanwhile, USD bulls will be hoping for a bounce from the rising trendline drawn from July’s swing low into 1.3100.
USD/CAD Daily Chart
Canadian Dollar price this week
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies this week. Canadian Dollar was the strongest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -1.77% | -2.18% | -0.79% | -2.16% | -0.69% | -1.90% | -1.42% | |
| EUR | 1.74% | -0.42% | 0.96% | -0.39% | 1.05% | -0.14% | 0.34% | |
| GBP | 2.15% | 0.42% | 1.36% | 0.00% | 1.45% | 0.28% | 0.73% | |
| CAD | 0.78% | -0.97% | -1.38% | -1.36% | 0.09% | -1.10% | -0.63% | |
| AUD | 2.13% | 0.40% | -0.01% | 1.35% | 1.44% | 0.27% | 0.74% | |
| JPY | 0.69% | -1.06% | -1.47% | -0.10% | -1.45% | -1.19% | -0.74% | |
| NZD | 1.87% | 0.06% | -0.28% | 1.08% | -0.26% | 1.17% | 0.45% | |
| CHF | 1.42% | -0.32% | -0.73% | 0.62% | -0.71% | 0.73% | -0.45% |
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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Canadian Dollar FAQs
What key factors drive the Canadian Dollar?
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.
How do the decisions of the Bank of Canada impact 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.
How does the price of Oil impact the Canadian Dollar?
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.
How does inflation data impact the value of the Canadian Dollar?
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.
How does economic data influence the value of 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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