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The Canadian dollar gains territory against the USD, as markets analyze inflation figures

  • The Canadian Dollar maintains slight gains against a weaker dollar.
  • Canada still does not publish data this week, US inflation data takes center stage.
  • US CPI inflation rises on Tuesday, US CPI inflation will be released on Wednesday.

The Canadian Dollar (CAD) is trading mixed on Tuesday after markets focused on the latest US inflation numbers, while investors continue to look for signs of rate cuts from the Federal Reserve (Fed). The CAD maintained its recent gains against the Dollar, but remains mired in technical consolidation.

Canada posted a slightly better-than-expected decline in March monthly wholesale sales, but this week's strictly weak Canadian data has investors focusing primarily on US inflation data. Inflation in the US Producer Price Index (PPI) in April was higher than expected in monthly terms. Annualized producer-level inflation came in as expected, but remained higher than before as price growth continues to grip the U.S. economy.

Daily summary of market movements: Canadian dollar remains in the middle zone as inflation dominates

  • Canadian wholesale sales in March fell -1.1%, less than the expected decline of -1.3%, but still below the previous month's 0.2% (revised from 0.0%). The impact on the markets was moderate due to the publication of low-level data.
  • US PPI inflation rose again in April, with monthly PPI growth of 0.5% versus the expected 0.3% and a rebound from the previous month's -0.1% decline.
  • The core PPI for the year ended April stood at 2.4%, as expected, but still increased from 2.1% in the previous period (revised from 2.4%).
  • US Consumer Price Index (CPI) inflation figures will be released on Wednesday, with markets expecting a moderation in consumer inflation. The annual CPI is expected to decline to 0.3% from 0.4%, and the core CPI is expected to decline slightly to 3.6% from 3.8%.
  • Fed Chairman Jerome Powell said in an appearance Tuesday that “inflation in the first quarter was notable for the lack of further progress.”

Canadian Dollar prices today

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

USD -0.26% -0.22% 0.17% -0.08% -0.20% -0.28% -0.17%
EUR 0.26% 0.02% 0.44% 0.19% 0.07% -0.02% 0.08%
GBP 0.22% -0.02% 0.39% 0.12% 0.02% -0.05% 0.05%
JPY -0.17% -0.44% -0.39% -0.24% -0.38% -0.46% -0.33%
CAD 0.08% -0.19% -0.12% 0.24% -0.14% -0.19% -0.10%
AUD 0.20% -0.07% -0.02% 0.38% 0.14% -0.08% 0.03%
NZD 0.28% 0.02% 0.05% 0.46% 0.19% 0.08% 0.11%
CHF 0.17% -0.08% -0.05% 0.33% 0.10% -0.03% -0.11%

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: Canadian Dollar Holds on to Near-Term Gains, But Bullish Stance Weakens

The Canadian Dollar (CAD) is trading mixed on Tuesday, gaining ground against the Japanese Yen (JPY) and holding steady against the US Dollar (USD). However, the CAD lost little weight against the Euro (EUR) and the British Pound (GBP).

The USD/CAD pair retreated to a known demand zone below 1.3660, but the pair remains afloat in the short term. Bids continue to cycle near the 200 hourly EMA at 1.3691.

Technical support lies on the daily candles at the 50-day EMA near 1.3640, and USD/CAD continues to trade north of the 200-day EMA at 1.3546 despite trading on the downside of the last swing high near 1.3850. The pair is up more than 3% in 2024.

USD/CAD hourly chart

USD/CAD daily 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, 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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