Canadian dollar falls on Monday on risk

Vaseline2 weeks ago

0 3 minutes read

The Canadian dollar continues to lose ground to the greenback.
Markets have tilted into a bearish stance to start the new week.
Canada remains largely absent from the economic calendar until Friday.

The Canadian dollar (CAD) returned to long-term averages against the US dollar on Monday, with markets opening the new trading week largely on the back foot. Investors retreated to the safety of the greenback, sending the Canadian dollar sliding to three-week lows.

Significant economic data from Canada remains entirely absent from the economic data ledger this week, at least until further prints of Canadian labor force data are due out on Friday. Canadian trade balance figures are out on Tuesday, but are almost guaranteed to have little or no impact on the market.

Daily digest market moves

Rising risk-off sentiment hits CAD on Monday.
Markets are facing a weaker forecast for the pace of rate cuts than many expected at the start of the year.
Chances of further rate cuts from the Fed are evaporating as the US labor market remains stubbornly healthy.
Fed remains adamant on further rate cuts, bets on no rate change in November rising.
Fed’s Kashkari: The balance of risks has tipped toward rising unemployment

Canadian Dollar Price Forecast

USD/CAD is currently trading at 1.36245 after recently rebounding from the 1.3500 level. Notably, the price action broke above the 200-day exponential moving average (EMA), a critical level that often signals a change in trend direction when breached. The break above this longer-term EMA suggests that bullish momentum may be gaining traction, and this level could act as a new support area.

Additionally, the 50-day EMA is slightly below the current price, further strengthening the bullish outlook. Breaking above both the 50-day and 200-day EMAs in quick succession strengthens the case for a potential rally in the coming days, assuming no significant pullback occurs.

The MACD histogram also indicates an upward shift as the MACD line (blue) has crossed above the signal line (orange), suggesting an increase in upside momentum. This cross, along with a steadily rising histogram, indicates a potential continuation of the upward move.

However, it is important to note that the pair is approaching resistance near the 1.3650 level, which previously acted as a strong psychological and technical barrier. If USD/CAD manages to break and hold above this level, it could open the door for further gains, with the next key resistance area around 1.3800.

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, and consumer sentiment surveys can all influence CAD direction. 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.

Vaseline2 weeks ago

0 3 minutes read