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Canadian Dollar Gains Ground Against USD Weakening Following US CPI Data

  • The Canadian dollar weakens on Wednesday, but rises on the decline of the USD.
  • Canada's housing and manufacturing numbers were mixed, with little impact.
  • Falling inflation in the US renews hopes of a rate cut in September.

The Canadian Dollar (CAD) is one of the weakest values ​​​​of the day on Wednesday, but will have to settle for second place, as the US Dollar (USD) retreats after inflation figures from the Consumer Price Index (CPI ) colder than expected. Easing inflationary pressure is reviving market hopes that the Federal Reserve (Fed) will cut interest rates in September.

Canada recorded a slight decrease in the number of housing starts in April, although the figure was higher than expected. Canadian manufacturing sales also contracted more than expected in March. Despite the setbacks, Canadian economic data is strictly low on Wednesday, with markets squarely focused on US CPI inflation.

Daily Market Moves Summary: CAD weakens on Wednesday, but USD weaker

  • US monthly CPI inflation in April cooled to 0.3% from the expected 0.4%, reigniting risk appetite and sending the dollar lower.
  • US core CPI inflation for the year to April also cooled, printing at the average forecast of 3.6% compared to the previous period's 3.8%.
  • Easing inflationary pressures are stoking investors' hopes for a Fed rate cut in September; According to the CME's FedWatch tool, rates markets are pricing in the odds of a cut of at least 25 basis points at 71%.
  • US Retail Sales in April also missed expectations, at 0.0%, worse than the 0.4% forecast versus 0.6% previously (revised from 0.7%).
  • The decline in retail sales fuels market hopes for rate cuts as the U.S. economy cools.
  • Housing starts in Canada for the year ended April decreased to 240,200, above the forecast of 238,000, but still slightly below the previous figure of 242,300.
  • Canadian manufacturing sales for March fell -2.1%, worse than expected (-1.4%). Sales of physical inventories for the previous month were revised slightly upward to 0.9% from 0.7%.

Canadian Dollar Prices Today

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

USD -0.46% -0.62% -1.01% -0.31% -0.81% -1.10% -0.37%
EUR 0.46% -0.16% -0.56% 0.12% -0.39% -0.63% 0.08%
GBP 0.62% 0.16% -0.41% 0.29% -0.22% -0.48% 0.26%
JPY 1.01% 0.56% 0.41% 0.69% 0.20% -0.10% 0.66%
CAD 0.31% -0.12% -0.29% -0.69% -0.51% -0.77% -0.04%
AUD 0.81% 0.39% 0.22% -0.20% 0.51% -0.28% 0.47%
NZD 1.10% 0.63% 0.48% 0.10% 0.77% 0.28% 0.74%
CHF 0.37% -0.08% -0.26% -0.66% 0.04% -0.47% -0.74%

The heat 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 Canadian Dollar in the left column and move down the horizontal line to the US Dollar, the percentage change in the box will represent CAD (base)/USD (quote).

Technical Analysis: The Canadian Dollar encounters technical barriers that limit gains against the Dollar

The Canadian Dollar (CAD) weakened overall on Wednesday, losing weight against all of its major currencies except the even weaker US Dollar. Against the Japanese yen (JPY), the CAD fell almost seven tenths, while against the Dollar it advanced more than a quarter of a percentage point.

The USD/CAD pair fell towards the lower part of a short-term demand zone, testing the 1.3600 level, but failing to develop further bearish trends. Accelerating declines has the pair trapped below the 200-hour EMA at 1.3678, and a further move lower could occur if bidders remain uninterested in defending the 1.3600 to 1.3620 levels.

Recent losses are starting to pile up, and the USD/CAD pair could close in the red for the sixth day in a row. The pair has broken down the 50-day EMA at 1.3638, and the immediate price floor under the daily candlesticks is at the 200-day EMA at 1.3546.

USD/CAD hourly chart

USD/CAD daily chart

Frequently Asked Questions about 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 main export product, the health of its economy, the 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 bet on riskier assets (risk-on) or look for safe havens (risk-off), with the risk-on being positive for the CAD. As Canada's 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 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.

The price of oil is a key factor influencing the value of the Canadian Dollar. Oil is Canada's main 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 is also supportive for the CAD.

Although inflation has traditionally always been considered a negative factor for a currency, since it reduces the value of money, the truth is that in modern times the opposite has happened with the relaxation of cross-border capital controls. Rising 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 macroeconomic data that is released measures 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, 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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