Canadian Dollar rides market churn as dust settles post-Fed, market sentiment whips
|- Canadian Dollar gets a boost from Fed hitting the right notes.
- Canada PMI missed the mark, to little effect.
- US labor preview worrying bellwether for Friday NFP.
The Canadian Dollar (CAD) found room to breathe as the US Dollar (USD) eases following the Federal Reserve (Fed) keeping close to the script in regards to the rate outlook.
Canada saw a minor tick down in its S&P Global Manufacturing Purchasing Managers Index early in the American trading session, but market momentum remains tepid. US data stands front and center in the midweek market session, with another US Nonfarm Payrolls (NFP) Friday looming at the end of the week.
Daily digest market movers: All eyes on the Fed
- Canada’s April Manufacturing PMI eased to 49.4 from the previous 49.8, missing the forecast improvement to 50.2.
- US ISM Manufacturing PMI also eased to 49.2 from the previous month’s 50.3, falling below the forecast 50.0.
- US ADP Employment Change for April came in at 192K, slightly down from the previous 208K (revised up from 184K), but beating the forecast 175K.
- Fed held rates as markets broadly expected, and investors are solidifying a November rate cut as Fed shrugs off recent sticky inflation.
- Employment figures could throw a wrench in rate cut hopes with Friday’s US NFP labor data wrapping up the trading week.
- Read more: Fed leaves policy rate unchanged as forecast, focus shifts to Powell presser
- According to the CME's FedWatch Tool, rate markets still expect a first rate cut in November, with a 35% chance of no cut at all in 2024.
Canadian Dollar price today
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.44% | -0.28% | -0.31% | -0.64% | -1.68% | -0.79% | -0.41% | |
| EUR | 0.46% | 0.17% | 0.14% | -0.18% | -1.22% | -0.30% | 0.06% | |
| GBP | 0.28% | -0.17% | 0.00% | -0.34% | -1.38% | -0.50% | -0.12% | |
| CAD | 0.31% | -0.15% | 0.03% | -0.32% | -1.39% | -0.48% | -0.10% | |
| AUD | 0.64% | 0.16% | 0.29% | 0.31% | -1.07% | -0.18% | 0.20% | |
| JPY | 1.67% | 1.25% | 1.36% | 1.34% | 1.07% | 0.90% | 1.28% | |
| NZD | 0.79% | 0.32% | 0.50% | 0.48% | 0.16% | -0.87% | 0.37% | |
| CHF | 0.40% | -0.06% | 0.10% | 0.11% | -0.19% | -1.29% | -0.38% |
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).
Technical analysis: Canadian Dollar mixed as markets focus elsewhere
The Canadian Dollar (CAD) is trading tightly on Wednesday, gaining around a third of a percent against the US Dollar (USD) after the latest FOMC outing. The CAD fell around half of a percent against the New Zealand Dollar (NZD) and a third of a percent against the Australian Dollar (AUD).
USD/CAD is down slightly from a near-term high around 1.3780, with an immediate technical floor at the 1.3700 handle. The 200-hour Exponential Moving Average (EMA) also provides topside technical support from 1.3707.
USD/CAD remains on the bullish side of the chart despite near-term pullbacks from the last swing high into 1.3850, with the pair trading on the high side of the 200-day EMA at 1.3533. The USD is up 4.4% against the CAD from the December swing low into 1.3175.
USD/CAD hourly chart
USD/CAD daily chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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.
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