- The Canadian Dollar fell to a new 25-month low against the Dollar.
- Canada is sparsely represented on the economic calendar this week and next.
- Lack of significant data from Canada and a rising US Dollar keep the CAD under pressure.
The Canadian Dollar (CAD) continued to lose ground against the Dollar, testing a new 25-month low against the US Dollar, as CAD traders continue to lose interest in the Canadian currency. The economic calendar remains thinly represented on the Canadian side, and a broad-based rally supporting the Dollar has propelled the USD/CAD pair to multi-year highs, approaching 1.4000.
With Canada largely absent from the economic data calendar this week, CAD traders will be forced to stay on the sidelines as Dollar flows take control of market momentum. Canada’s Consumer Price Index (CPI) inflation figures are on the agenda for next week, but not until Tuesday.
Daily Market Summary: Canadian Dollar Loses Value as Dollar Rises
- The Canadian Dollar is set to retreat another fifth of a percent against the US Dollar on Tuesday.
- The lack of activity on the CAD-centric economic calendar this week has the CAD playing second fiddle to the Dollar.
- The US economic calendar is also thin on Tuesday, although markets are preparing for the US Consumer Price Index (CPI) inflation update on Wednesday.
- The US headline CPI is expected to rise to 2.6% YoY from 2.4%, and the core CPI is expected to remain stable at 3.3% YoY.
- A rise in consumer inflation in the US could shake market confidence in a final rate cut by the Federal Reserve (Fed) in 2024.
Canadian Dollar Price Forecast
The Canadian Dollar (CAD) is set to return to its losses against the US Dollar this week; After breaking a five-week losing streak by closing slightly higher last Friday, weakness has returned to CAD flows. The dollar is rising to multi-year highs, sending the USD/CAD pair to a 25-month peak at 1.3970.
Despite a brief test of multi-year highs, USD/CAD buyers have yet to break out of near-term consolidation as price action oscillates near 1.3950. Short interest still has time to build up from here and send the pair into a new bearish leg back towards the 200-day EMA near 1.3660.
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, 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.
