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The Canadian dollar seeks room for maneuver, limited rise after the Canadian CPI did not give the expected signal

  • The Canadian dollar registers bullish bids this Tuesday, but momentum remains weak.
  • The Fed minutes will be published early in the afternoon.
  • Crude oil moves sideways above $77.00, limiting CAD support.

The Canadian Dollar (CAD) continues to rise against the US Dollar (USD). CAD momentum remains limited with crude oil turning in place and investors focusing on the latest Federal Reserve (Fed) Minutes due in the US session.

Canadian Consumer Price Index (CPI) inflation figures fell short of expectations in the annualized headline figure, and the Bank of Canada’s (BoC) core CPI was mixed between monthly and annual results.

Daily summary of market movements: Canadian dollar finds little room, movements remain tight

  • Canadian headline CPI inflation in October fell short of expectations on an annualized basis, standing at 3.1% versus the forecast of 3.2%, falling from 3.8% previously.
  • The month-on-month CPI stood at 0.1%, as expected, bouncing slightly after the -0.1% drop in September.
  • The core CPI rose to 0.3% compared to -0.1% previously.
  • The BOC’s year-on-year core CPI lost some weight in October, falling to 2.7% from 2.8% previously.
  • Markets are focusing on the upcoming release of the Fed Minutes, scheduled for 2:00 PM EST.
  • If the Fed is excessively hawkish, markets could become nervous.
  • Crude oil is trading in the $77.00/barrel area, offering little support to the CAD.

Quote of the Canadian Dollar today

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

USD 0.05% -0.26% -0.29% -0.05% -0.40% -0.41% -0.24%
EUR -0.04% -0.30% -0.33% -0.12% -0.46% -0.45% -0.27%
GBP 0.26% 0.31% -0.03% 0.19% -0.13% -0.15% 0.02%
CAD 0.30% 0.34% 0.04% 0.25% -0.11% -0.12% 0.07%
AUD 0.05% 0.08% -0.19% -0.22% -0.33% -0.34% -0.15%
JPY 0.40% 0.46% 0.15% 0.11% 0.31% -0.02% 0.17%
NZD 0.42% 0.44% 0.15% 0.12% 0.34% 0.01% 0.15%
CHF 0.23% 0.28% -0.04% -0.07% 0.16% -0.17% -0.18%

The 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 in the box will represent EUR(base)/JPY(quote).

Technical Analysis: The Canadian Dollar struggles to capitalize, but seeks new gains against the US Dollar

The Canadian Dollar (CAD) advances against the US Dollar (USD) in trading on Tuesday, but bullish momentum remains limited and the USD/CAD pair is hesitant after falling below the 1.3700 area.

The pair remains capped on the downside after bouncing lower off the 200 hourly SMA last week.

Short-term technical barriers to intraday trading will be last week’s low bids near 1.3660 and USD/CAD’s bearish rejection of the 200-hour SMA at 1.3770.

Tuesday’s bearish action sees the pair experiencing a downside break of an uptrend line from the July low in the 1.3100 area. Technical support lies at the 50-day SMA near 1.3665 and the 200-day SMA at 1.3500.

USD/CAD Hourly Chart

USD/CAD Daily Chart

Canadian Dollar FAQ

What are the key factors driving 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 bet on riskier assets (risk-on) or look for safe havens (risk-off), with the risk-on 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 Bank of Canada decisions 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 that influences 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 Balance of Trade, which is also a 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, reducing 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

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