- The Canadian Dollar found little reason to move at the outset of the new trading week.
- Despite a soft start, plenty of key events loom in the week ahead.
- The BoC is expected to cut rates again, and US NFP jobs data lurks on Friday.
The Canadian Dollar (CAD) pulled into the midrange on Monday, kicking off the new trading week with a notable lack of momentum. Canadian and US markets are both dark for the Labor Day holiday, but key calendar events for both will keep USD/CAD traders close to their terminals.
The Bank of Canada (BoC) is set to deliver another rate decision this week, and markets are broadly anticipating another quarter-point trim. On the US side of the data docket, US Purchasing Managers Index (PMI) figures are dotted throughout the week, with the economic calendar slated to culminate in another fresh round of US Nonfarm Payrolls figures.
Daily digest market movers
- Canada and the US are both out on Monday on holidays, market flows remain crimped.
- BoC expected to trim rates another quarter point to 4.25%.
- At the current cut, rate markets expect the Canadian interest rate to land somewhere near 3.75% by the year’s end.
- US ADP Employment Change slated for Thursday represents the first hurdle on the road to Friday’s US NFP jobs data dump.
- This week represents the last major labor update for the US economy before the Fed delivers its hotly-anticipated rate call on September 18.
Canadian Dollar price forecast
Monday’s holiday showing for both the Canadian Dollar (CAD) and the US Dollar (USD) leaves USD/CAD bids in a bit of a lurch. Price action has been hobbled on holiday markets flows and the pair is trading water near the 1.3500 handle.
The CAD’s four-week bull run against the Greenback appears to have fizzled out. The Canadian Dollar chalked in a 3.62% bottom-to-top rally against the USD, rising from 22-month lows to five-month highs within four weeks. Near-term action favors Greenback bulls once again as USD/CAD bids look poised for a fresh run back towards the 200-day Exponential Moving Average (EMA) 1.3616.
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.
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 stays weak below 0.6800 after Australia's widening Q2 Current Account deficit
AUD/USD is posting small losses below 0.6800 in Asian trading on Tuesday. The widening Australian Current Account deficit in the second quarter weighs on the pair alongside a modest US Dollar uptick and souring risk sentiment. The focus shifts to top-tier US economic data.
USD/JPY returns to the red below 147.00 amid souring risk sentiment
USD/JPY is back in the red, extending below 147.00 in the Asian session on Tuesday. The pair drops as risk sentiment sours on renewed China worries and lifts the haven demand for the Japanese Yen. The downside, however, could be capped by US Dollar rebound ahead of key data.
Gold price extends its decline below $2,500 on the US Dollar recovery
The Gold price (XAU/USD) loses ground amid the stronger US Dollar (USD) and higher US Treasury bond yields on Tuesday. Nonetheless, the anticipation that the US Federal Reserve (Fed) will cut interest rates in September might underpin the precious metal price as lower interest rates reduce the opportunity cost of holding non-yielding gold.
Ethereum's weak average September returns make investors wary amid ETF outflows
Ethereum (ETH) is up 2% on Monday despite negative sentiment around ETH's historical weak price action in September. Meanwhile, ETH ETFs continue their weak trend, recording another week of net outflows.
Week ahead: US labour data and the BoC rate announcement in focus
With US Federal Reserve Chair Jerome Powell’s recent speech at the Jackson Hole Symposium confirming that it is time to begin easing policy as well as underlining the importance of the jobs market, this week’s jobs data may help determine how the Fed approaches its easing cycle.
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.