- The Canadian dollar fell another tenth of a percent against the dollar.
- Despite encouraging jobs data from Canada, markets tilted toward the US dollar.
- US PPI inflation moderated to zero in September, but core PPI remains an issue.
The Canadian Dollar (CAD) fell against the Dollar for the eighth consecutive trading day, as markets move away from the Loonie in favor of the US Dollar. US Producer Price Index (PPI) inflation moderated more than expected in September, but markets noted that core PPI inflation still rose in the annualized period.
Canada’s jobs report did little to strengthen the CAD, even though new employment data nearly doubled forecasts. Canada’s unemployment rate also fell, defying market expectations of another rise. With the Bank of Canada (BoC) widely expected to deliver another 50 basis point rate cut at its next policy meeting later in the month, markets have little reason to bet on the CAD. The Loonie is now set for its worst week against the Dollar since March 2023.
Market drivers
- Canada added 46.7K net new jobs in September, almost double the market median forecast of 27K, compared to 22.1K in August.
- Canada’s unemployment rate also fell to 6.5% from 6.6%, reversing the expected increase to 6.7%.
- Despite the encouraging jobs numbers, the BoC is expected to cut rates by another 50 basis points on October 23.
- US PPI inflation moderated to zero in September, cooling to 0.0% monthly compared to the expected 0.1% and 0.2% in August.
- The September annual PPI figure moderated less than expected, coming in at 1.8% versus the expected 1.6%, but still below the revised August figure of 1.9%.
- Core PPI inflation, excluding food and energy prices, actually rose to 2.8% year-on-year in September, above the 2.7% anticipated. The annualized PPI figure for August was also revised to 2.6% from the initial 2.4%.
Canadian Dollar Price Forecast
The USD/CAD currency pair continued its recent bullish momentum, closing at 1.3762, up 0.15% on the day. The pair has risen sharply over the past week, recovering from September lows near 1.3400. As seen on the chart, the price action is well above the 50-day EMA at 1.3605 and the 200-day EMA at 1.3612, indicating a shift towards a more bullish outlook. The pair broke above these key moving averages in early October, confirming a break from the downtrend that had dominated throughout August and September.
Momentum indicators support the recent bullish reversal. The Moving Average Convergence/Divergence (MACD) indicator has turned positive, with the MACD line crossing above the signal line. The histogram is rising steadily, showing increasing bullish momentum. With MACD readings now in positive territory, the outlook suggests further near-term gains are likely, with the next key resistance level around 1.3800, a psychological and technical barrier that traders will likely monitor closely.
However, the recent rally has left the pair overextended in the near term, as indicated by the rapid pace of gains in recent sessions. A pullback to test the 50-day EMA or the 1.3650 level could be possible before the pair attempts to rally higher. Overall, the trend appears to have tilted in favor of the USD, but traders should keep an eye on upcoming economic data and any signs of exhaustion in the bullish momentum to manage potential volatility.
USD/CAD Daily Chart
The Canadian Dollar FAQs
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.
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.
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.
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.
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.
