- USD/CAD trades in negative territory for the third consecutive day around 1.4010 in Friday’s early Asian session.
- The weakness in the US Dollar (USD) weighs on the pair, but potential downside seems limited.
- Canada’s Q3 GDP growth report will be in the spotlight on Friday.
The USD/CAD pair extends its downside to near 1.4010 during the early Asian session on Friday, pressured by the weakening of the US Dollar (USD) after the holiday-thinned market. All eyes will be on Canada’s Gross Domestic Product (GDP) growth number for the third quarter (Q3), which is due later on Friday.
The Greenback edges lower due to the month-end flows and some profit-taking for the US long weekend. Nonetheless, the cautious stance of the US Federal Reserve (Fed) might help limit the USD’s losses. The FOMC Minutes released on Tuesday showed that Fed officials see interest rate cuts ahead but at a gradual pace as inflation eases and the labor market remains strong.
On the Loonie front, traders brace for Canada’s third-quarter GDP growth, which is expected to grow 1.0% on an annualized basis in Q3, compared to the previous reading of 2.1%. On a monthly basis, Canadian GDP is estimated to expand 0.3% MoM in September, compared to August’s flat 0.0% print.
Any signs of slower growth in the Canadian economy might push the Bank of Canada (BoC) to deliver a second consecutive 50 basis points (bps) rate cut at the upcoming next rate decision on December 11. This, in turn, could drag the Canadian Dollar (CAD) lower and act as a tailwind for USD/CAD.
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 rises back above 0.6500 after hawkish RBA Bullock's comments
AUD/USD edges higher to regain 0.6500 in Asian trading on Friday. The pair capitalizes on upbeat Australian Private Capex data for October and hawkish comments from RBA Governor Bullock. A broadly muted US Dollar also aids the Aussie's uptick amid light trading.
USD/JPY extends sell-off to near 150.00 after hot Tokyo CPI
USD/JPY extends sell-off to test 150.00 in Friday's Asian session following the release of hotter-than-expected November inflation figures from Tokyo, Japan’s capital. The data strengthens the case for another BoJ rate hike in December, sending the Japanese Yen through the roof.
Gold recovery faces healthy resistance; will buyers succeed?
Gold price extends its gradual recovery mode and tests the critical $2,670 resistance early Friday, having hit a weekly low of $2,605 on Tuesday. A broadly subdued US Dollar (USD) performance alongside the US Treasury bond yields lend support to the Gold price upswing.
ASI's FET rallies following earn-and-burn mechanism launch
The Artificial Superintelligence Alliance (FET) saw double-digit gains on Thursday after it announced plans to burn up to 100 million tokens as part of its Earn-and-Burn mechanism, set to begin in December.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.