- The Canadian Dollar loses momentum as strong US macroeconomic data boosts the US Dollar.
- The Canadian Manufacturing PMI fails to support the Canadian Dollar.
- Oil prices have stalled near year-to-date highs, adding negative pressure on the CAD.
The Canadian Dollar (CAD) has started the week on the wrong foot against a somewhat stronger US Dollar. Encouraging data from US manufacturing activity and falling crude oil prices are weighing on the Canadian dollar in a thin market session, as most European markets are closed on the Monday after Easter.
The US ISM manufacturing index has shown levels above 50 for the first time since October 2022. These figures suggest an unexpected expansion of activity in the sector in March and have been combined with improvements in all sub-indices, with the price component increasing to its fastest pace in almost two years, suggesting a positive contribution to inflation.
Just today, the S&P Canadian Manufacturing PMI barely changed in March to complete an entire year of contraction in the sector's activity. Additionally, crude oil prices have retreated from their recent highs, adding negative pressure to the Canadian Dollar.
Daily Market Moves Summary: USD/CAD Rebounds on Good US Data
- The US dollar benefits from US macroeconomic data.
- The US manufacturing PMI rose to 50.3 in March from 47.8 in February, beating market expectations for a reading of 48.4.
- Prices paid in the manufacturing sector rose to 55.8, their highest level since July 2022.
- The Canadian S&P Manufacturing PMI rose to 49.8 from 49.7 in February.
- Oil prices have retreated from yearly highs of $83.65, adding negative pressure to the commodity-linked CAD.
- On Friday, the US PCE price index grew 0.3% monthly in February, 2.5% annually. The market expected a monthly increase of 0.4%.
- US consumer spending rose 0.8% in February, up from 0.2% in January, well above the 0.5% increase expected by market experts.
- Several Fed speakers this week are likely to give more clues about the outlook for monetary policy ahead of Friday's Nonfarm Payrolls report.
Price of the US dollar today
Below is the percentage change of the United States Dollar (USD) against the main currencies. The US Dollar was the weakest currency against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.46% | 0.59% | 0.37% | 0.61% | 0.21% | 0.59% | 0.32% | |
| EUR | -0.46% | 0.13% | -0.08% | 0.15% | -0.25% | 0.13% | -0.14% | |
| GBP | -0.59% | -0.13% | -0.22% | 0.03% | -0.39% | 0.00% | -0.28% | |
| CAD | -0.37% | 0.10% | 0.21% | 0.24% | -0.17% | 0.21% | -0.06% | |
| AUD | -0.62% | -0.15% | -0.02% | -0.25% | -0.41% | -0.04% | -0.29% | |
| JPY | -0.22% | 0.28% | 0.38% | 0.17% | 0.43% | 0.42% | 0.12% | |
| NZD | -0.60% | -0.12% | 0.00% | -0.21% | 0.02% | -0.38% | -0.27% | |
| CHF | -0.33% | 0.14% | 0.27% | 0.06% | 0.29% | -0.11% | 0.27% |
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: The USD has room to continue appreciating up to 1.3615
USD/CAD regained positive traction on Monday, underpinned by strong US macroeconomic data that supports the “soft landing” rhetoric and opens cracks in the market view that anticipates three rate hikes in 2024.
The pair remains within a slightly bullish channel. The bounce from last week's lows has broken the resistance at 1.3565, giving buyers hope of extending gains towards 1.3615 and the top of the channel at 1.3632. Supports are 1.3520 and 1.3470.
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.
