Canadian Dollar strengthens above 1.3650 ahead of Canada's GDP, US PPI data
- USD/CAD posts modest losses around 1.3675 in Friday’s Asian session.
- A lack of clarity over US trade policy drags the US Dollar lower.
- The Canadian Q4 GDP and US January PPI data will be the highlights later on Friday.
The USD/CAD pair trades with mild losses near 1.3675 during the Asian trading hours on Friday. US policy fog continues to weigh on the US Dollar (USD) against the Canadian Dollar (CAD). Traders brace for the Canadian Q4 Gross Domestic Product (GDP) and US January Producer Price Index (PPI) reports, which are due later on Friday.
The Greenback remains on the defensive following the US Supreme Court's ruling last week that the emergency powers law used by US President Donald Trump to impose tariffs did not authorize his policy regime. Trump said that he would impose a blanket 15% tariff on imports, using legislation that allows him to impose import taxes for 150 days without congressional approval. The next day, Trump threatened to raise levies to 15%, raising concerns over US tariff uncertainty.
Nonetheless, better-than-expected US Initial Jobless Claims data might help limit the USD’s losses. Data released by the US Department of Labor (DOL) on Thursday showed that the number of Americans filing first-time unemployment claims rose to 212K in the week ending February 21. This figure followed 208K (revised from 206K) recorded in the previous week and came in below the market consensus of 215K.
Meanwhile, easing tensions between the US and Iran could undermine the commodity-linked Loonie. It is worth noting that Canada is a major oil-exporting country, and lower crude oil prices generally have a negative impact on the CAD. Oman’s Foreign Minister Badr Albusaidi said on Thursday that the US and Iran will continue nuclear talks next week after making “significant progress” in Switzerland.
Canadian Dollar FAQs
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 the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. 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) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all 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 put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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