Canadian Dollar tests low side on Monday as Crude Oil weakness saps Loonie strength

Most recent article: Canadian Dollar extends decline as Canadian Trade Balance backslides

Canadian Dollar broadly turns lower amidst Crude Oil rout.
Canada economic data docket is thin this week.
Crude Oil tumbles once again in choppy trading as downside pressure mounts.

The Canadian Dollar (CAD) saw downside pressures across the major currencies board on Monday, getting pushed down the charts by a backsliding Crude Oil market to kick off the second week of 2024.

Canadian International Merchandise Trade Balance and Building Permits, both slated for release on Tuesday, represent the only data showings for the Canadian Dollar on this week’s economic calendar. Markets are still adjusting after last Friday’s US Nonfarm Payrolls (NFP) print saw heavy revisions to previous periods.

Weakening economic figures are the name of the game for data points from Canada, with Tuesday’s Canadian International Merchandise Trade Balance forecast to decline from 2.97 billion to 1.8 billion for November. Meanwhile, Canadian November Building Permits are likewise expected to slip from 2.3% to 2.0%.

Daily digest market movers: Canadian Dollar softens on despondent Crude Oil demand outlook

Another slump in Crude Oil is dragging down the Canadian Dollar on waffling Middle East barrel prices.
Saudi Arabia slashed the prices they charge to trading partners in Asia for Saudi crude as production cuts from the Organization of Petroleum Exporting Countries (OPEC) continue to get foiled by slumping barrel demand from key oil market drivers such as China.
US Crude Oil production continues to pump at or near record levels near 13 million barrels per day.
The legs continue to get kicked out from underneath broad market expectations of global undersupply that has yet to materialize despite months of production cuts.
Last Friday’s US NFP goosed market expectations of Fed rate cuts after printing well above expectations, despite a steep downside revision to previous periods’ prints. A firm employment outlook in the US makes it less likely that the Federal Reserve (Fed) will get pushed into a rate cut cycle as soon as investors were initially hoping for.
Key US data for this week lands on Thursday with another round of the US Consumer Price Index (CPI) inflation print.
Headline annualized US CPI inflation is expected to tick up slightly from 3.1% to 3.2% for December.

Canadian Dollar price today

The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the weakest against the Japanese Yen.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.10%	-0.26%	-0.07%	-0.03%	-0.37%	-0.05%	-0.31%
EUR	0.12%		-0.14%	0.06%	0.10%	-0.24%	0.08%	-0.19%
GBP	0.26%	0.16%		0.20%	0.24%	-0.08%	0.22%	-0.05%
CAD	0.06%	-0.02%	-0.20%		0.03%	-0.26%	0.03%	-0.25%
AUD	0.04%	-0.06%	-0.23%	-0.04%		-0.31%	-0.01%	-0.28%
JPY	0.33%	0.27%	0.09%	0.31%	0.35%		0.26%	0.04%
NZD	0.11%	0.00%	-0.16%	-0.02%	0.02%	-0.26%		-0.21%
CHF	0.33%	0.22%	0.05%	0.24%	0.29%	-0.06%	0.27%

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 slides to 3-week low on soft barrel bids, USD/CAD tests 1.3400

The Canadian Dollar (CAD) saw further downside on Monday, before moderating in the back half of the US market session. Selling pressure sent the Loonie lower against all of its major currency peers. The Canadian Dollar wrapped up Monday's trading window down a third of a percent against the Japanese Yen (JPY), a quarter of a percent lower against the Swiss Franc (CHF), and in the red by a fifth of a percent against the Pound Sterling (GBP).

Canadian Dollar losses against the US Dollar (USD) remain limited on Monday, but they are still in the red as the USD/CAD pair extended to test the 1.3400 handle. The Loonie has shed 1.75% against the Greenback bottom-to-top from late December’s bottom bids near 1.3177.

The US Dollar has closed up or mostly flat against the Canadian Dollar for seven consecutive trading days, and Monday is set to chalk in an eighth consecutive loser for the CAD.

A continued upswing in the USD/CAD is set for a challenge from the near-term technical ceiling from the 200-day Simple Moving Average (SMA) just below the 1.3500 major handle, while a downside run into the 1.3200 region will see the pair testing into five-month lows below 1.3175.

USD/CAD Hourly Chart

USD/CAD Daily Chart

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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