- The Canadian Dollar gave up further ground against the US Dollar on Wednesday.
- A rising US Dollar bolstered by climbing US Treasury yields is sending USD/CAD higher.
- Crude Oil prices continue to deflate, pulling the rug out from underneath the CAD.
The Canadian Dollar (CAD) stooped even lower against the US Dollar (USD) on Wednesday, sending the USD/CAD pair to a fresh seven-month high. The USD/CAD pinged a new high of 1.3780 before the USD finally eased off enough for the pair to ease back to 1.3740.
The Oil-backed Loonie is losing support as Crude Oil barrels declined further on Wednesday, extending recent losses. Oil prices have scorched up the charts recently as concerns about global supply constraints send barrel prices higher, but rebalanced investor outlooks on global barrel production are easing fuel costs back. West Texas Intermediary (WTI) Crude Oil barrels were last seen trading below $84.50/bbl on Wednesday.
The Greenback continues its march up the charts as US Treasury yields continue to punch higher. The 1-year US Treasury yield hit 4.882% early Wednesday as US yields across the curve remain pinned into 17-year highs.
Daily Digest Market Movers: Canadian Dollar falls as oil prices backslide, USD/CAD peaks at 1.3780
- The Canadian Loonie hit a new seven-month low against the Greenback.
- Money markets see a 65% chance of one more rate hike from the Bank of Canada (BoC) this year.
- One more rate hike could provide the CAD with some much-needed support.
- Crude Oil barrel costs are sinking as investors rebalance their forward-looking expectations of supply constraints as production ramps up outside of the OECD.
- CAD bidders will be looking ahead to Thursday’s Ivey Purchasing Managers Index (PMI) for September.
- US ADP figures missed expectations to print at 89K versus the forecast 153K.
- Another US Nonfarm Payrolls (NFP) Friday is on the docket.
- Bank of Canada (BoC) Deputy Governor Nicolas Vincent hit newswires warning that Canadian businesses have been too efficient at passing rising costs onto consumers, increasing bets of another BoC hike and spiking Canadian bond yields higher.
- Canadian government bond yields rose in tandem with US Treasuries, 10-year yields hit their highest rate since 2007 at 4.292%.
Technical Analysis: Canadian Dollar slips further, USD/CAD paddling around 1.3740
The USD/CAD tapped a new seven-month high on Wednesday of 1.3780 before settling back to 1.3730. The pair caught an early bounce from near the 1.3700 level. Wednesday’s bounce sees the pair set to use the 1.3700 level as technical support for a move higher if bullish momentum sustains.
On the daily candlesticks, the USD/CAD is extending gains from the 20-day Simple Moving Average, which saw a bullish rejection of the pair near 1.3450 back in September. Odds of a short-side reversal could be on the cards for the USD/CAD, with the Relative Strength Index (RSI) now tapping into overbought territory.
Technical traders will want to wait for price action to confirm a lack of bullish momentum. However, the USD/CAD has successfully set a new daily high for every candle for the last five consecutive trading days.
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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