The Canadian dollar is in the middle as bullish momentum breaks

VaselineSeptember 17, 2024

0 4 minutes read

The Canadian dollar is in the middle as bullish momentum breaks

The Canadian dollar traded in familiar territory on Tuesday.
Canada’s CPI inflation data did little to inspire confidence in the CAD.
Looming Fed rate call pushes markets into wait-and-see mode.

The Canadian dollar (CAD) settled into familiar mid-range territory on Tuesday after lackluster Canadian consumer price index (CPI) data failed to trigger a bid in CAD flows. The Federal Reserve’s (Fed) interest rate call is weighing on global markets on Wednesday, negating any unilateral movement in market flows.

Canada printed a series of CPI data well below expectations, with August’s headline CPI figure contracting for the second time in 2024. Annual national figures were also below expectations, and the Bank of Canada’s (BoC) own measure of core CPI inflation cooled further. on an annualized basis.

Daily digest market moves

Canadian CPI figures for August were broadly below expectations on Tuesday, hampering the CAD’s chances of finding momentum before an expected Fed rate cut comes in for a landing during the midweek market session.
Canada’s headline CPI inflation fell to 2.0 per cent for the year to August, below the 2.1 per cent forecast and further down from the previous 2.5 per cent.
Canadian CPI inflation fell -0.2% in August, missing the expected 0.1% print and down from the previous month’s 0.4% increase.
The BoC’s own measure of annualized core inflation fell to 1.5% from 1.7% previously.
Global markets are gearing up for the Fed’s upcoming interest rate call on Wednesday, which is widely expected to kick off a new rate cut cycle.
The Fed is expected to cut its key benchmark rate by 25-50 bps for the first time in over four years.

Canadian Dollar PRICE Today

The table below shows the percentage change of the Canadian dollar (CAD) against the major currencies listed today. The Canadian dollar was the strongest against the Japanese yen.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.13%	0.40%	1.04%	0.07%	-0.08%	0.23%	0.23%
EURO	-0.13%		0.28%	0.90%	-0.10%	-0.21%	0.10%	0.10%
GBP	-0.40%	-0.28%		0.65%	-0.34%	-0.49%	-0.17%	-0.20%
JPY	-1.04%	-0.90%	-0.65%		-0.97%	-1.11%	-0.79%	-0.82%
CAD	-0.07%	0.10%	0.34%	0.97%		-0.14%	0.19%	0.14%
AUD	0.08%	0.21%	0.49%	1.11%	0.14%		0.31%	0.26%
NZD	-0.23%	-0.10%	0.17%	0.79%	-0.19%	-0.31%		-0.03%
CHF	-0.23%	-0.10%	0.20%	0.82%	-0.14%	-0.26%	0.03%

The heatmap shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose the Canadian dollar in the left column and move along the horizontal line to the US dollar, the percentage change shown in the box will be CAD (base)/USD (quote).

Canadian Dollar Price Forecast

The Canadian dollar (CAD) continues to struggle to find footing in the broader currency markets. The CAD is roaming in familiar territory against the USD, keeping USD/CAD pegged just south of the 200-day exponential moving average (EMA) at 1.3617.

1.3600 continues to be a long-term inflection point for USD/CAD. Bid takers are unable to move the US dollar above the key technical level, but the lack of bullish interest in the CAD has sent the Loonie pair spinning in circles.

USD/CAD Daily Chart

Canadian Dollar FAQ

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 balance of trade, which is the difference between the value of Canada’s exports and imports this one. Other factors include market sentiment – whether investors are taking riskier assets (risk-on) or seeking safe havens (risk-off) – with risk-on being positive for CAD. 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 significant influence on the Canadian dollar by setting the level of interest rates at which banks can lend to each other. This influences the level of interest rates for everyone. The BoC’s main goal is to keep 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 lending conditions, the former being negative CAD and the latter positive CAD.

The price of oil is a key factor influencing the value of the Canadian dollar. Oil is Canada’s largest export, so the price of oil tends to have an immediate impact on the value of the CAD. In general, if the price of oil rises and the CAD rises, as the aggregate demand for the currency rises. The opposite is true if the price of oil falls. Higher oil prices also tend to result in a higher probability of a positive trade balance, which also supports the CAD.

While inflation has always traditionally been considered a negative factor for a currency because it decreases 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 prompt central banks to raise interest rates, which draws more capital inflows from global investors looking for a profitable place to keep their money. This increases the demand for the local currency, which in Canada’s case is the Canadian dollar.

Macroeconomic data highlights the health of the economy and can impact the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment surveys and consumer sentiment 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, it can encourage the Bank of Canada to raise interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.

VaselineSeptember 17, 2024

0 4 minutes read