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Canadian Dollar Adds Second Day of Gains as Markets Shake After US Data

  • The Canadian dollar is rising again after Tuesday’s gains.
  • Sales by companies and intermediaries in Canada register a slight recovery.
  • CAD gains limited by falling crude oil supplies.

The Canadian Dollar (CAD) advances strongly on Wednesday as markets recover from recent risk appetite.

Wholesale sales and business figures in Canada beat forecasts, helping to bolster the CAD. Meanwhile, falling crude oil prices keep CAD gains limited.

Daily Market Summary: Canadian Dollar Dips as Loonie Bulls Gain Slight Advantage

  • The Canadian dollar advances for the second consecutive day against the United States dollar (USD).
  • September Canadian manufacturing sales beat forecasts at 0.4%, versus -0.1% expected, but fell from 1.0% in August (revised up from 0.7%).
  • September wholesale sales softened significantly, but still beat forecasts and stood at 0.4%, down from 1.8% the previous month (revised downward from 2.3%).
  • US data missed press expectations, with October retail sales falling from September’s revised 0.9% to -0.1%, a contraction but still above the -0.3% forecast.
  • The US annualized core Producer Price Index (PPI) excluding food and energy also came in below expectations at 2.4%, versus 2.7% expected.
  • Crude oil prices declined on Wednesday, capping CAD gains.
  • Housing starts in Canada and changes in beneficiaries of Employment Insurance benefits will be published on Thursday.

Technical Analysis: Canadian Dollar Looks to Round Out Additional Gains Against the Dollar

Another day of gains for the Canadian Dollar (CAD) against the US Dollar (USD) is taking USD/CAD back down to the 1.3700 area. The pair is testing support barriers near 1.3650, and technical indicators are leaning lower.

The USD/CAD pair is experiencing a back-and-forth movement intraday, as the pair tests the 50-day moving average (SMA) which sits just north of 1.3650. Breaking this level would open the doors to a bearish move towards the 200-day SMA in the 1.3500 area.

The Relative Strength Index (RSI) has crossed the lower half of the 50.0 line, approaching oversold conditions, but there is still plenty of room to run on the indicator.

Wednesday’s further declines in USD/CAD set the pair up for a firm break of an uptrend line, although a rejection from here would put the CAD on track for a return to losses.

USD/CAD Daily Chart

Current rate of the Canadian dollar

Below is the percentage change of the Canadian Dollar (CAD) against the currencies listed today. The Canadian dollar was the strongest currency against the British pound.

USD 0.26% 0.53% -0.23% -0.25% 0.41% -0.36% -0.18%
EUR -0.27% 0.27% -0.49% -0.52% 0.14% -0.62% -0.45%
GBP -0.54% -0.26% -0.76% -0.79% -0.12% -0.89% -0.72%
CAD 0.23% 0.52% 0.78% 0.00% 0.65% -0.12% 0.06%
AUD 0.25% 0.52% 0.78% 0.03% 0.66% -0.11% 0.08%
JPY -0.41% -0.14% 0.11% -0.66% -0.68% -0.77% -0.59%
NZD 0.35% 0.62% 0.88% 0.13% 0.11% 0.76% 0.18%
CHF 0.18% 0.44% 0.71% -0.05% -0.08% 0.59% -0.18%

The map shows the percentage changes of the major currencies against each other. The base currency is chosen in the left column, while the quote currency is chosen in the top row. For example, if you choose the Euro in the left column and scroll down the horizontal line to the Japanese Yen, the percentage change that appears in the box will represent EUR (base)/JPY (quote).

Frequently Asked Questions about the Canadian Dollar

What factors determine the price of the Canadian dollar?

The key factors that determine the price of 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 product, the health of its economy, inflation and the trade balance, which is the difference between the value of Canadian exports and its imports. Other factors are market sentiment, that is, whether investors are betting on riskier assets (risk appetite) or looking for safe havens (risk aversion), with risk appetite being positive for the CAD. As a major trading partner, the health of the US economy is also a key factor influencing the Canadian dollar.

How do the decisions of the Bank of Canada influence the Canadian dollar?

The Bank of Canada (BoC) significantly influences the Canadian Dollar by setting the level of interest rates that banks can lend to each other. This influences the level of interest rates for everyone. The BOC’s main objective is to keep inflation between 1% and 3% by adjusting interest rates up or down. Relatively higher interest rates are usually positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the first being negative for the CAD and the second being positive for the CAD.

How does the price of oil influence the Canadian dollar?

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. Generally, if the price of oil rises, the CAD also rises, as aggregate demand for the currency increases. The opposite occurs if the price of oil falls. Higher oil prices also tend to result in a higher probability of a positive Balance of Trade, which is also support for the CAD.

How does inflation data influence the value of the Canadian Dollar?

Although inflation has traditionally always been considered a negative factor for a currency, as it reduces the value of money, the opposite has actually happened in modern times with the relaxation of cross-border capital controls. Inflation tends to lead central banks to raise interest rates, which attracts more capital from international investors looking for a lucrative place to store their money. This increases the demand for the local currency, which in the case of Canada is the Canadian Dollar.

How does economic data influence the value of the Canadian dollar?

Macroeconomic data releases measure the health of the economy and can influence the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can 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 raise interest rates, resulting in a stronger currency. However, if economic data is weak, the CAD is likely to fall.

Source: Fx Street

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