- The Canadian Dollar depreciates further following mixed Canadian inflation data.
- Core CPI fell to 2% annually in March, fueling hopes that the BoC could start cutting rates in June.
- Later on Tuesday, Fed Chair Jerome Powell and BoC Chair Tiff Macklem will discuss the Canadian economy in Washington.
He Canadian dollar (CAD) is suffering a sharp depreciation against a stronger Dollar on Tuesday, and the mixed Canadian Consumer Price Index (CPI) has not provided any significant support. Consumer inflation accelerated in March, although the Bank of Canada's core CPI rose at a slower pace than the previous month.
These figures coincide with the cooling of the inflationary trend last observed at the Bank of Canada's last monetary policy meeting, which would allow them to begin cutting rates in June. This explains the negative impact on the Canadian Dollar against the Dollar.
Later on Tuesday, BoC Governor Tiff Macklem and Federal Reserve (Fed) Chairman Jerome Powell are expected to participate in a roundtable discussion on the Canadian economy in Washington. Any comments on the monetary policy plans of their respective banks will probably be analyzed with special interest.
Daily Market Moves Summary: USD/CAD Continues Rising on Monetary Policy Divergence
- Lower hopes for Fed easing in the coming months and higher expectations for the BoC to cut rates in June are weighing on the Canadian dollar.
- The Canadian CPI accelerated 0.6% in March and 2.9% annually, compared to 0.3% and 2.8% the previous month.
- However, the core CPI fell at an annual rate of 2.0%, compared to 2.1% in the previous month.
- US construction activity data has disappointed, with housing starts and building permits falling in March above expectations.
- US industrial production grew 0.4% in March, in line with market expectations and unchanged from the previous month. Capacity utilization rose to 78.4% from the downwardly revised 78.2%, but below the 78.5% forecast by experts.
- Fed Vice Chairman Jefferson has given a neutral speech in which he has hinted at rate cuts later this year, but has also warned that inflation data forces him to keep rates high for longer.
Quote of the Canadian Dollar this week
The following table shows the percentage change of the Canadian Dollar (CAD) against the main currencies during the week. The Canadian dollar was the weakest currency against the Swiss franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.20% | 0.22% | 0.48% | 1.03% | 0.83% | 1.00% | -0.10% | |
| EUR | -0.19% | 0.02% | 0.26% | 0.83% | 0.63% | 0.81% | -0.32% | |
| GBP | -0.21% | -0.02% | 0.27% | 0.82% | 0.62% | 0.79% | -0.32% | |
| CAD | -0.48% | -0.29% | -0.27% | 0.56% | 0.35% | 0.52% | -0.60% | |
| AUD | -1.05% | -0.85% | -0.84% | -0.56% | -0.21% | -0.03% | -1.16% | |
| JPY | -0.82% | -0.61% | -0.58% | -0.35% | 0.20% | 0.23% | -0.94% | |
| NZD | -0.99% | -0.84% | -0.82% | -0.52% | 0.03% | -0.17% | -1.12% | |
| CHF | 0.12% | 0.31% | 0.34% | 0.60% | 1.15% | 0.95% | 1.12% |
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 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).
Technical Analysis: USD/CAD reaches overbought levels at 1.3845
The US dollar seems unstoppable. The pair has risen non-stop over the last six days, appreciating almost 2%. RSI levels are overbought, although with no signs of reversal in sight.
The bulls have hit resistance at the 1.3845 area, and these conditions suggest the possibility of a bearish correction. In that case, 1.3785 and 1.3730 are likely to provide support. To the upside, above 1.3845, the next target is the November 2023 high at 1.3900.
USD/CAD 4-hour chart
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 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.
How do Bank of Canada decisions affect 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.
How does the price of oil affect 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 lead to a higher probability of a positive trade balance, which also supports 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. 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.
How does economic data influence the value of 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.
