- The Canadian Dollar churned at the mercy of market flows on Thursday.
- Canada reported another, albeit slower, contraction in Wholesale Sales in June.
- Uptick in US Retail Sales pin Greenback lower, but CAD unable to capitalize.
The Canadian Dollar (CAD) was at the mercy of overall market flows on Thursday, rising against the day’s weaker currencies but giving up further ground as the Greenback softens. US markets tilted into a risk-on stance after US Retail Sales jumped in July, helping the market’s overall mood but trimming bets of a double rate cut from the Federal Reserve (Fed) in September.
Canada reported another miss in Wholesale Sales in June, reporting another contraction in large-scale business inventory acquisitions. However, the figure was less than the previous MoM contraction, but the data which runs two months behind the curve, is too late for CAD traders to do anything with.
Daily digest market movers: CAD gives up further ground to Greenback despite risk-on sentiment
- Canadian Wholesale Sales contracted again in June, falling by -0.6% MoM compared to the previous -1.2% decline.
- Despite the low-impact nature of the data, CAD still found a way to ease back against the softening US Dollar.
- US Retail Sales surged to 1.0% in July, the indicator’s highest print since February of 2023.
- The jump in US Retail Sales, a firm indication of good economic health, prompted a broad recovery in risk appetite, sending the Greenback lower.
- Not all is rosy: markets are shrugging off a -0.6% contraction in US Industrial Production in July, the indicator’s worst print since November of 2023.
- Rate markets have pared back bets of a 50 bps double cut from the Fed in September to less than 25%, but they still see 76% odds of at least a quarter-point rate trim.
- Friday’s University of Michigan Consumer Sentiment Index will give one last data point for investors trying to nail down rate cut bets. The index of survey responses is expected to tick higher to 66.9 from 66.4.
Canadian Dollar price forecast: Further losses on the horizon as CAD goes limp
The Canadian Dollar (CAD) broadly followed global market flows, giving a mixed performance overall but shedding a little over one-tenth of one percent against the US Dollar. USD/CAD bids rose back into contention with the 50-day Exponential Moving Average (EMA) at 1.3730, but bidders remain unable to muscle the pair back into fresh positive territory above 1.3750.
USD/CAD daily 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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