- The Canadian dollar experiences a slight recovery against the US dollar.
- Positive retail sales results have not generated momentum in the Canadian Dollar as markets remain focused on the Dollar.
- Stable crude oil prices don’t hurt the CAD, but they don’t help it either.
He Canadian dollar (CAD) is seeing a slight rally on Friday, but the selling pressure remains and the intraday action is steadily pushing the USD/CAD back to your opening offers.
Canada Retail Sales beat expectations but were still weak and the 1.3700 price point remains too attractive a level for US Dollar (USD) bidders to abandon.
Daily Market Movement Summary: Canadian Dollar is the most popular price level of the week as markets follow US Dollar flows
- Canada’s retail sales beat forecasts, but still fell short of the previous figure.
- August CAD Retail Sales fell 0.1%, beating the forecast of -0.3%.
- Despite beating forecasts, the data remains weak and below previous estimates due to weakening consumer spending.
- July data was revised upwards from 0.3% to 0.4%, widening data gaps after the fact.
- Federal Reserve (Fed) Chairman Jerome Powell’s statement on Thursday continues to weigh on the markets as investors remain wary of the Fed’s dot chart.
- Market participants fearing a higher and longer interest rate cycle from the Fed are bracing for disappointment.
- Fed officials continue to signal their willingness to keep rates high.
- Next Tuesday the preliminary Purchasing Managers’ Index (PMI) for October in the United States will be published, which will be the next data that will affect the USD/CAD pair.
Technical Analysis: USD/CAD refuses to move too far from 1.3700, while Canadian Dollar takes two steps forward and one step back
USD/CAD opened Friday’s trading near 1.3716, falling to daily lows of 1.3670, while the CAD gains centimeters rather than kilometers on the dollar, but the pair remains in play near the 1.3700 area.
Daily candlesticks show USD/CAD trading at short-term highs, while the markets’ restrictive stance weighs on the pair. Long-term resistance comes from a descending trend line from early 2020 panic highs at 1.4650, while short-term chart action has the 50-day SMA rising to provide support technical from 1.3575.
A firm break to the upside would leave the pair in a position to challenge 1.3800 near the March highs, while to the downside it would have to tangle with the 200-day SMA before revisiting the September lows near 1 .3400.
Frequently Asked Questions about the Canadian Dollar
What factors determine the price of the Canadian dollar?
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of oil, Canada’s largest export, the health of its economy, inflation and Trade balance, which is the difference between the value of Canada’s exports versus its imports. Other factors are market sentiment, that is, whether investors are betting on riskier assets (risk appetite) or looking for safe havens (risk aversion), with risk appetite being positive for the CAD. As a major trading partner, the health of the US economy is also a key factor influencing the Canadian dollar.
How do the decisions of the Bank of Canada influence the Canadian dollar?
The Bank of Canada (BoC) significantly influences 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.
How does the price of Oil influence 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 result in a higher probability of a positive trade balance, which is also support for 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. Inflation tends to lead central banks to raise interest rates, which attracts more capital from international 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?
Macroeconomic data releases measure 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, 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.
