- The Canadian Dollar advances moderately as market sentiment improves.
- USD/CAD declines despite the Fed's hawkish stance and falling oil prices.
- The Canadian Dollar's current recovery is likely to be short-lived.
The Canadian Dollar (CAD) advances on Wednesday, ending a five-day streak of sell-offs that have sent the Canadian Dollar down 1.7%. The positive risk sentiment, coupled with lower US yields, is hurting the safe-haven US Dollar and offsetting the adverse fundamental backdrop for the CAD.
The absence of key US releases is allowing the US dollar to regain some of the ground lost in the previous days. However, bullish attempts are likely to be short-lived. The Federal Reserve's (Fed) “bullish for longer” stance, as opposed to the Bank of Canada's (BoC) dovish outlook, is expected to support the US dollar. In addition, the decline in oil prices represents an additional drag on the Canadian dollar, linked to raw materials.
On Wednesday, the release of the Fed Beige Book and speeches by Fed members Mester and Bowman are the only events worth mentioning. Following Fed Chairman Jerome Powell's speech on Tuesday, its impact on the pair is limited.
Daily Market Moves Summary: USD/CAD loses steam at five-month highs
The Canadian dollar advances 0.2% on Wednesday, having lost almost 2% in five days of massive selling.
The dovish stance of the Fed, confirmed on Wednesday by its chair Powell, and the dovish outlook of the BoC, which is expected to start cutting rates in June, are acting as a headwind for the CAD.
On Wednesday, Fed Chair Powell warned of a lack of progress on inflation, suggesting the Fed will have to keep rates at restrictive levels for longer.
Bets on a Fed rate cut in July have fallen to 37% from 50% earlier in the week. Investors now value cuts in 2024 at 40 basis points, compared to 150 in January.
EIA crude oil reserves have increased by 2.735 million barrels, compared to the 1.65 million expected. This is further weighing on crude oil prices and also the CAD.
On Tuesday, Canadian inflation data came in mixed. The headline CPI accelerated to an annual rate of 2.9%, compared to 2.8% the previous month. The core CPI fell to 2%, its lowest level in three years.
These figures support the view that the Bank of Canada may cut rates soon, probably in June, and add negative pressure on the pair.
Price of the Canadian Dollar today
The following table shows the percentage change of the Canadian Dollar (CAD) against the currencies listed today. The Canadian Dollar was the weakest currency against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.15% | 0.01% | -0.05% | 0.05% | -0.09% | -0.02% | -0.03% | |
| EUR | 0.17% | 0.18% | 0.13% | 0.21% | 0.05% | 0.11% | 0.11% | |
| GBP | -0.04% | -0.18% | -0.08% | 0.03% | -0.14% | -0.07% | -0.07% | |
| CAD | 0.02% | -0.13% | 0.03% | 0.08% | -0.08% | -0.02% | -0.01% | |
| AUD | -0.05% | -0.18% | -0.02% | -0.08% | -0.16% | -0.10% | -0.07% | |
| JPY | 0.09% | -0.07% | 0.09% | 0.05% | 0.12% | 0.04% | 0.06% | |
| NZD | 0.05% | -0.13% | 0.03% | 0.01% | 0.09% | -0.07% | -0.01% | |
| CHF | 0.04% | -0.11% | 0.07% | 0.01% | 0.10% | -0.06% | 0.00% |
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 in corrective pullback with 1.3785 holding off bears for now
The overall trend of the US Dollar remains intact, although the pair is experiencing a corrective pullback from overbought levels, following a five-day rally.
Bears are expected to challenge 1.3785, ahead of the multi-week low at 1.3728. The 38.2% Fibonacci level of the April rally stands at 1.3705. To the upside, immediate resistance is at 1.3845. Further up, the next target would be 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.
