- The Canadian Dollar rose on Wednesday, supported by other markets.
- A lack of data from Canada leaves CAD at the mercy of sentiment.
- Canadian GDP figures set to be overshadowed by US PCE inflation.
The Canadian Dollar (CAD) drifted higher on Wednesday, bolstered more by overall market flows than any intrinsic bidding power behind the CAD itself. Markets have overspent on bullish risk appetite in the face of looming Federal Reserve (Fed) interest rate cuts expected in September, giving the Canadian Dollar room to breathe and pare back recent gains against the Greenback.
Canada remains broadly absent from this week’s economic calendar, with Friday’s Canadian Gross Domestic Product (GDP) figures slated to be entirely eclipsed by US Personal Consumption Expenditure Price Index (PCE) inflation data due to release at the same time.
Daily digest market movers
- An overall retreat in overextended market sentiment has sapped momentum from bidders, giving the Greenback a leg up and a chance to recover against a long side opposite the CAD.
- Canada is widely expected to report a slight downtick in annualized GDP on Friday, forecast to print at 1.6% in Q2 versus the previous 1.7%.
- Core US PCE inflation is expected to print at 2.7% YoY, a slight rise from the previous 2.6%.
- A below-expectations print in US PCE inflation will surely ignite a fresh broad-market splurge on rate cut expectations, while an above-forecast release will send rate cut hopes scurrying into the shadows.
- US GDP figures due on Thursday could also throw a spanner in the works, but the release is likely to be muted with US annualized QoQ expected to hold steady at 2.8%.
Canadian Dollar price forecast
The Canadian Dollar (CAD) shed weight on Wednesday, paring back recent gains against the Greenback, but only slightly. USD/CAD is still churning chart paper on the south side of the 1.3500 handle, and a near-term plunge from recent chart highs near 1.3950 has left long-term moving averages in the dust.
USD/CAD daily chart![](https://editorial.fxstreet.com/miscelaneous/USD_CAD-638604776026004820.png)
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
![AUD/USD moves lower on CPI data](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/AUDUSD/australian-currency-18259170_XtraSmall.jpg)
AUD/USD moves lower on CPI data
The Australian Dollar retreated against its US counterpart following the release of Australia's latest inflation data. The soft inflation data has reinforced expectations that the Reserve Bank of Australia will cut interest rates later this year.
![EUR/USD pares recent gains, poised for further downside](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/money-9377516_XtraSmall.jpg)
EUR/USD pares recent gains, poised for further downside
EUR/USD trimmed recent gains on Wednesday, stepping lower after clipping fresh highs for the year as broad-market anticipation of Federal Reserve rate cuts in September keeps broad-market risk appetite pinned to the ceiling.
![Gold price slides ahead of crucial US jobs report](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/gold-nuggets-7636265_XtraSmall.jpg)
Gold price slides ahead of crucial US jobs report
Gold prices dropped more than 0.70% on Wednesday as the Greenback staged a comeback after Federal Reserve Chair Jerome Powell hinted that the US central bank is ready to ease policy, because policymakers are worried about a weak labor market.
![TON rallies following Telegram CEO Pavel Durov's release from custody](https://editorial.fxstreet.com/images/Markets/Currencies/Cryptocurrencies/crypto_matrix-637516561995093295_XtraSmall.jpg)
TON rallies following Telegram CEO Pavel Durov's release from custody
Pavel Durov, Telegram's founder, was released on Wednesday from French custody after four days. The release was on several terms, including that Durov does not leave the country.
![Three fundamentals for the week: Focus on the fragility of the US economy](https://editorial.fxstreet.com/images/Macroeconomics/EconomicIndicator/Employment/NFP/american-dollar-bills-on-a-stars-and-stripes-flag-28691402_XtraSmall.jpg)
Three fundamentals for the week: Focus on the fragility of the US economy Premium
US Consumer confidence data will provide a gauge of how consumers are feeling. Jobless claims are in focus after Fed Chair Powell's dovish speech. Investors will look to the core PCE index to confirm that inflation is falling.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.