- The Canadian dollar lost ground on Wednesday, breaking an attempted bullish recovery.
- Canada will be off the data agenda until Friday’s retail sales release.
- After two days of gains, the CAD fell 0.1% against the US Dollar.
The Canadian Dollar (CAD) returns to its losing ways, retreating 0.1% against the US Dollar on Wednesday. The Loonie has ended its short-term bullish rally against the safe-haven US Dollar during the mid-week market session as the economic calendar remains low impact on both sides of the USD/CAD pair.
Canada saw a rise in Consumer Price Index (CPI) inflation numbers this week, but the momentum quickly faded and the Canadian dollar is near multi-year lows after USD/CAD hit a high of 54 months above 1.4100 last week. Thursday will continue to be a quiet day with very little of interest on the data agenda except for the weekly US jobless claims figures, with USD/CAD traders stuck in a holding period before US Purchasing Managers’ Index (PMI) releases on Friday, as well as Canadian retail sales figures for September.
Daily Market Summary: Canadian Dollar Returns To Warmth Amid Light Calendar On Wednesday
- The Canadian dollar retreated a tenth of a percent against the US dollar midway through the trading week, keeping USD/CAD near multi-year highs.
- Canada’s Consumer Price Index (CPI) inflation numbers earlier this week helped extend a short-term Loonie rally, but bullish momentum quickly faded.
- Data remains thin on Wednesday, with little on the radar for Thursday outside of weekly US initial jobless claims. New claimants for benefits are expected to rise slightly to 220,000 week-on-week for the week ahead. ended on November 15 compared to 217,000 the previous week.
- Loonie markets will pivot towards Canadian September retail sales figures on Friday, with the headline figure expected to hold steady at 0.4% mom, while retail sales excluding auto purchases are expected to rebound to 0.5% month-on-month from the previous month’s -0.7% contraction.
- US PMIs will be the key numbers to watch on Friday, with both manufacturing and services components expected to rise slightly. Manufacturing PMI activity survey results are expected to rise to 48.8 in November from 48.5 the previous month, while November services component numbers are forecast to rise to 55.3 from 55. .0 October plans.
Canadian Dollar Price Forecast
Despite maintaining bullish hopes, the Canadian Dollar (CAD) still lost some ground against the US Dollar on Wednesday, shedding a meager tenth of a percent and snapping a two-day winning streak that saw the Loonie regain around nine-tenths of a percent from multi-year lows. USD/CAD wavered just below the 1.4000 level during the mid-week market session, testing the key psychological level but keeping the price action limited on the low side of the key price level.
With USD/CAD holding near a 54-month high near 1.4100, bearish momentum on the chart has limited potential to drag bids back to the 50-day EMA near 1.3800.
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.
