- The Canadian Dollar continues to find familiar ground near 1.3500 against the US Dollar.
- The lack of data from Canada leaves the CAD at the mercy of market flows.
- Preliminary US employment numbers beat forecasts with Friday’s NFP on the horizon.
The Canadian Dollar (CAD) weakened slightly on Wednesday as overall risk aversion flows boost the US Dollar. Geopolitical tensions in the Middle East and investors’ overall outlook on upcoming US jobs numbers dominate market attention during the mid-week session.
Canada released the updated Purchasing Managers’ Index (PMI) earlier this week without much fanfare, but preliminary US Nonfarm Payrolls (NFP) numbers took center stage on Wednesday as investors grapple with hopes of more rate cuts from the Federal Reserve (Fed).
Market drivers
- The Canadian dollar found little momentum on Wednesday, losing a scant tenth of a percent against the US dollar.
- Canada’s September S&P PMI returned to positive territory above 50.0 for the first time since May 2023 this week, registering 50.4 and finding its highest value since March 2023. Despite the improved activity outlook , the CAD has found very little bullish momentum.
- Market participants are grappling with a rise in US jobs numbers on Wednesday; US ADP employment change numbers were much higher than expected, reducing the chances of further major rate cuts from the Fed.
- While the rise in US jobs numbers ahead of Friday’s NFP jobs report is a positive, investors desperate for more 50 basis point rate cuts from the Fed in 2024 will be disappointed as the Central planners condition the size of future rate cuts on labor market performance.
- CAD traders will have to wait until Friday for more economic data from Canada. Canada’s Ivey PMI numbers will likely be completely overshadowed by the highly anticipated NFP release.
economic indicator
ADP Employment Report
The employment data is prepared by Automatic Data Processing Inc. in collaboration with Moody’s Analytics. It is an estimate of the change in the number of people employed in the private, nonfarm sector in the United States and is published monthly. A positive number implies that the private sector recorded an increase in worker payrolls, while a negative number means a reduction. Figures above expectations are usually positive for the dollar, while those below expectations are negative.
Last post:
Wed Oct 02, 2024 12:15
Frequency:
Monthly
Current:
143K
Dear:
120K
Previous:
99K
Fountain:
ADP Research Institute
Traders often consider employment figures from ADP, the largest U.S. payroll provider, to be the harbinger of the Bureau of Labor Statistics’ release on Nonfarm Payrolls (usually released two days later), because of the correlation between the two. The overlap of both series is quite high, but in individual months, the discrepancy can be substantial. Another reason currency traders follow this report is the same as with the NFP: strong and persistent growth in employment numbers increases inflationary pressures and, with them, the likelihood that the Fed will raise interest rates. . Actual numbers that beat consensus tend to be bullish for the USD.
CAD Price Forecast
The Canadian Dollar (CAD) continues to chart a sideways technical pattern on the daily candlesticks; USD/CAD is caught in a volatility trap just south of the 200-day EMA near the 1.3600 area, but CAD remains unable to enter a new bullish rally against the US Dollar.
USD/CAD Daily Chart
The Canadian Dollar FAQs
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 main 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 confidence, that is, whether investors bet on riskier assets (risk-on) or look for safe assets (risk-off), with the risk-on being positive for the 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) exerts significant influence over 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 high 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 former being negative for the CAD and the latter being positive for the 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. 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 lead to a higher probability of a positive trade balance, which also supports the CAD.
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. Higher inflation often leads central banks to raise interest rates, attracting more capital inflows from global 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.
The published macroeconomic data measures the health of the economy and may have an impact on the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer confidence 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
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
