Canadian Dollar clings to daily gains amidst risk-on mood
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- Canadian Dollar picks up with the USD losing ground in a risk-on session.
- Investors are looking for the sidelines ahead of Wednesday’s US CPI and BoC rate decision.
- USD/CAD keeps its positive trend intact with CAD recovery attempts limited.
The Canadian Dollar (CAD) is trading moderately higher on Monday, extending the rebound from the year-to-date lows after Friday’s upbeat Ivey PMI offset the negative impact of upbeat US Nonfarm Payrolls. A modest appetite for risk on a very calm weekly opening is allowing some US Dollar pullback, ahead of key macroeconomic data this week.
The US economy created far more jobs than expected in March, while wage growth moderated, although it is still at levels inconsistent with the Federal Reserve’s (Fed) 2% core inflation target for price stability. Last week, Fed officials hinted at a hawkish demeanor on the back of the recent data, which is expected to keep the US Dollar’s downside attempts limited.
Investors, however, are looking for the sidelines on Monday, awaiting the US CPI figures on Wednesday to check whether the recent uptick on inflation is an exception or a structural trend. Also on Wednesday, the Bank of Canada (B0C) will release its monetary policy decision. There is a minor risk of an unexpected rate cut that would send the CAD tumbling.
Daily digest market movers: USD/CAD ticks up in a quiet market
- The Canadian Dollar barely moves on Monday, still paring some losses after having hit four-month lows on Friday.
- The highlight of the week is the US CPI due on Wednesday. US headline inflation is expected to have increased 0.3% and 3.4% from a 0.4% monthly increment and a 3.2% year-on-year reading in February.
- The core CPI is seen easing to 0.3% in March, from 0.4% in February, with the yearly rate cooling to 3.7% from 3.8%.
- Also on Wednesday, the BoC is expected to leave its benchmark index unchanged at 5%. The main interest will be on any hints toward the timing of the first rate cut.
- On Friday, US Nonfarm Payrolls increased by 303K in March from 270K in February, well above the 200K forecasted by market experts.
- Average Hourly Earnings increased at a 0.3% monthly pace and 4.1% YoY from 0.2% and 4.3%, respectively, in February.
- Canadian Ivey Purchasing Managers Index has improved to 57.7, its best reading over the last 12 months, from 53.9 in February.
Canadian Dollar price this month
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies this month. Canadian Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.60% | -0.18% | 0.41% | -1.10% | 0.25% | -0.79% | 0.34% | |
| EUR | 0.59% | 0.41% | 1.01% | -0.50% | 0.84% | -0.19% | 0.92% | |
| GBP | 0.18% | -0.42% | 0.60% | -0.91% | 0.42% | -0.60% | 0.51% | |
| CAD | -0.42% | -1.01% | -0.62% | -1.52% | -0.18% | -1.22% | -0.09% | |
| AUD | 1.09% | 0.49% | 0.90% | 1.49% | 1.33% | 0.30% | 1.41% | |
| JPY | -0.25% | -0.83% | -0.44% | 0.18% | -1.32% | -1.03% | 0.09% | |
| NZD | 0.78% | 0.18% | 0.60% | 1.20% | -0.32% | 1.02% | 1.11% | |
| CHF | -0.34% | -0.93% | -0.50% | 0.09% | -1.43% | -0.08% | -1.11% |
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: USD/CAD remains biased higher despite failure to break the channel top at 1.3645
Technical indicators show the US Dollar on a bullish trend, with the structure of higher highs and higher lows intact. The pair was rejected on Friday at the top of the ascending channel, now at 1.3645, but the ensuing Canadian Dollar rebound remains unable to extend past the main SMAs.
The pair has a support area at 1.3555, where the confluence of the 4-hour 50 and 100 SMAs are likely to hold bears off. Below here, the next targets are at 1.3485 and 1.3420. Resistances are at the mentioned 1.3645 and 1.3680.
USD/CAD 4-Hour 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.
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