Created
: 2024.08.23
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Canadian Dollar bull run against Greenback runs out of gas
World FX news
Breaking news
Canadian Dollar bull run against Greenback runs out of gas
2024.08.23 04:29
2024.08.23 04:29
- The Canadian Dollar broadly recovered on Thursday, but lost ground against the Greenback.
- Canada saw a cooling in employment insurance claimants.
- US PMI misfire sends the US Dollar broadly higher.
The Canadian Dollar (CAD) broadly recovered its posture against most of its major currency peers, but a market-wide pivot back into the US Dollar sent USD/CAD bids higher in the back half of the trading week. The pair has snapped a recent winning run, sparked by a shudder through overall market sentiment.
Canada saw a pullback in Employment Insurance Beneficiaries Change figures in June, helping to ease the CAD higher for the day. However, a misprint in US Purchasing Managers Index (PMI) figures sent the Greenback higher across the board, putting a lid on Canadian Dollar gains on Thursday.
Daily digest market movers
- Canadian Employment Insurance Beneficiaries Change rose 1.3% MoM in June, down from the previous month's 1.9% upswing in unemployment benefits claimants.
- US Manufacturing PMI figures contracted to 48.0 in August, below the expected steady hold at 49.6.
- The US Services PMI component ticked higher to 55.2 from 55.0, beating the forecast decline to 48.0, but an overall decline in reported employment figures in the PMI reports still threw a spanner in risk sentiment on Thursday.
- Markets still expect action from the Federal Reserve (Fed) in September, with rate markets pricing in 100% odds of at least some sort of cut on September 18.
- Bets of an initial double cut of 50 bps to kick off a rate cutting cycle have eased to less than 25% after Thursday's PMI misfire, down from nearly 70% over a week ago.
Canadian Dollar price forecast
A market-wide recovery in Greenback bids has snapped a winning streak for the Canadian Dollar (CAD), pricing in a bullish candle in the USD/CAD pair for the first time in a week. Price action had initially declined below the 200-day Exponential Moving Average (EMA) at 1.3633, but Thursday's bullish interruption has the pair poised for a technical congestion pattern before facing another go around the bullish wheel.
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.
Last updated
: 2024.08.23
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