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USD/CAD jumps to near 1.4430 as investors turn cautious ahead of Trump’s inauguration

  • USD/CAD rises sharply to near 1.4430, with investors remaining cautious as Trump is set to return White House on Monday.
  • The outlook of the Canadian economy has weakened on the assumption that Trump will raise tariffs by 25%.
  • The soft core CPI data for December forced traders to raise Fed dovish bets.

The USD/CAD pair climbs to near 1.4430 in Friday’s North American session. The Loonie pair strengthens as the Canadian Dollar (CAD) performs weakly, with investors turning cautious as United States (US) President-elect Donald Trump is scheduled to take oath on Monday.

Canadian Dollar PRICE Today

The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the New Zealand Dollar.

 USDEURGBPJPYCADAUDNZDCHF
USD 0.06%0.40%0.25%0.22%0.43%0.43%0.16%
EUR-0.06% 0.33%0.19%0.15%0.36%0.37%0.09%
GBP-0.40%-0.33% -0.15%-0.18%0.03%0.03%-0.24%
JPY-0.25%-0.19%0.15% -0.03%0.17%0.18%-0.10%
CAD-0.22%-0.15%0.18%0.03% 0.20%0.22%-0.06%
AUD-0.43%-0.36%-0.03%-0.17%-0.20% 0.00%-0.27%
NZD-0.43%-0.37%-0.03%-0.18%-0.22%-0.01% -0.28%
CHF-0.16%-0.09%0.24%0.10%0.06%0.27%0.28% 

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 Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).

Investors expect that the foremost job of Trump would be the release of a new tariff plan, a scenario that could lead to a global trade war. The Canadian economy is expected to face a 2% increase in tariffs on its exports to the US, as mentioned by Trump earlier.

Market participants expect large tariffs by the US on Canada could dampen their economic outlook. "If Canada gets hit with large tariffs and they don't retaliate then the disinflationary effects would likely prompt considerably more easing by the Bank of Canada (BoC)," said Derek Holt, economists at Scotiabank said.

The BoC was one of the leading central banks that eased policy restrictiveness aggressively. According to a January 10-16 period Reuters poll, the BoC is almost certain to cut interest rates by 25 basis points (bps) to 3%.

Meanwhile, the US Dollar (USD) moves higher as investors digest might acceleration in traders’ bets supporting more than one interest rate cut by the Federal Reserve (Fed). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises to near 109.15.

Fed dovish bets rose after the release of the US Consumer Price Index (CPI) report for December, which showed that the annual core inflation surprisingly decelerated.

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.

Author

Sagar Dua

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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