- USD/CAD remains firm above 1.3550 with US CPI, Presidential debate taking centre stage.
- Investors see the US annual headline CPI declining to 2.6%.
- USD/CAD delivers a mean-reversion move to near 20-day EMA.
The USD/CAD pair holds into gains near 1.3550 in Tuesday’s North American session. The Loonie asset remains firm as the US Dollar (USD) clings to gains amid uncertainty ahead of the United States (US) presidential debate and the Consumer Price Index (CPI) data for August, which will be published on Wednesday.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades close to Monday’s high of 101.60.
Investors will keenly focus on presidential debate between current Vice President Kamala Harris and former US President Donald Trump over November elections. Signs of Trump gaining majority over Harris for winning elections could strengthen the US Dollar (USD) as he is known for favoring high fiscal spending and raising tarrifs.
The US annual headline CPI is estimated to have grown by 2.6%, slower than 2.9% in August, with core inflation rising steadily by 3.2%. The inflation data will significantly influence market speculation for Federal Reserve (Fed) interest rate cut path.
Meanwhile, the Canadian Dollar (CAD) remains under pressure as the Bank of Canada (BoC) is expected to cut interest rates further in the last quarter of the year.
USD/CAD delivers a pullback move to near the 20-day Exponential Moving Average (EMA), which trades around 1.3570. The near-term outlook of the pair appears to be bearish as the 14-day Relative Strength Index (RSI) has shifted into the bearish range of 20.00-60.00 from 40.00-80.00.
The horizontal resistance plotted from May 15 low of 1.3590 will be a major barricade for the US Dollar bulls.
A further pullback move to near the May 15 low of 1.3590 will likely be a selling opportunity for market participants, which would drag the asset towards the April 5 low of 1.3540, followed by the psychological support of 1.3500.
On the flip side, an upside recovery above August 21 high of 1.3626 would drive the asset towards 19 August high of 1.3687 and August 15 high of 1.3738.
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 bounces back above 0.6650, as focus shifts to US CPI
AUD/USD is bouncing back above 0.6650 in the Asian session on Wednesday, helped by renewed US Dollar weakness. Further upside could be capped amid RBA Hunter's comments while traders wait on the sidelines ahead of the crucial US consumer inflation data.
USD/JPY slumps to 141.50 after BoJ Nagakawa's hawkish comments
USD/JPY meets fresh supply and plunges to its lowest in eight months to near 141.50. The Japanese Yen receives a boost from the hawkish commentary from BoJ board member Nagakawa. Traders now look to key US CPI report for further trading impetus.
Gold price refreshes weekly top, tests short-term trading range hurdle ahead of US CPI
Gold price attracts some buyers for the third straight day on Wednesday and touches a fresh weekly high, around the $2.520-2,521 region during the Asian session. The commodity, however, remains confined in a multi-week-old trading range as traders await the release of the latest US CPI figures due later today.
Solana could rally as Breakpoint conference approaches
Solana is up 0.5% on Tuesday, following significant growth in its network daily active addresses. Investors anticipate a potential rally as the Solana Breakpoint conference approaches.
Five Fundamentals for the week: Jittery markets fear the ECB, US inflation and more Premium
Is there still a chance? Investors hope for a 50-bps rate cut from the Fed but also fear a global recession is underway. The world's three largest economies, the US, China, and the eurozone, are set to rock global markets.
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.