Canadian Dollar picks up as geopolitical concerns ease
- Canadian Dollar extends recovery in calm Friday trading session.
- Iran has downplayed the alleged drone attack from Israel, which has eased risk aversion.
- USD/CAD is testing the neckline of a bearish S&H pattern at 1.3725.
The Canadian Dollar (CAD) is trading higher for the third consecutive session on Friday and is on track for a moderate weekly recovery after a sharp sell-off over the previous two weeks. A softer US Dollar in the absence of key macroeconomic data and easing fears about the Middle East conflict are contributing to the Loonie’s recovery.
Investors seem to have come to terms with the idea that the Federal Reserve (Fed) will delay and scale down its monetary easing plans, which is allowing some take-profit for the US Dollar. Chicago Fed President Austen Goolsbee has reiterated the lack of progress on inflation, but the impact on the US Dollar has been marginal.
Furthermore, the Iranian authorities have played down rumours about a drone attack by Israel. With no further threat to an escalation of the conflict, the immediate risk aversion has gradually eased, which is good for the CAD.
Daily digest market movers: USD/CAD extends recovery as risk aversion eases
- Canadian Dollar appreciates further, favoured by a light US macroeconomic calendar and easing geopolitical concerns.
- Iranian government has downplayed the alleged attack from Israel and showed no intentions for retaliation, which has calmed markets.
- On Friday, Chicago Fed President Austen Goolsbee commented on the lack of progress on US inflation but remained confident in reaching the 2% core target in a reasonable time frame.
- This week, US data has added evidence of sustained economic growth with a tight labor market. This backs the idea that the US central bank will have to keep rates at a restrictive level for a longer time.
- Data from Canada reflects a softening inflationary trend, which highlights the diverging monetary policy outlook between the BoC and the Fed.
- Bets for a Fed rate cut in July have dropped to 38% from around 50% at the beginning of the week, with investors pricing in 40 bps of cuts in 2024, down from 150 bps in January.
Canadian Dollar price today
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the weakest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.14% | 0.24% | -0.18% | 0.01% | -0.03% | 0.13% | -0.41% | |
| EUR | 0.14% | 0.39% | -0.05% | 0.15% | 0.11% | 0.28% | -0.25% | |
| GBP | -0.25% | -0.40% | -0.45% | -0.24% | -0.28% | -0.11% | -0.65% | |
| CAD | 0.18% | 0.06% | 0.44% | 0.21% | 0.16% | 0.33% | -0.19% | |
| AUD | -0.01% | -0.15% | 0.24% | -0.21% | -0.04% | 0.13% | -0.40% | |
| JPY | 0.02% | -0.10% | 0.25% | -0.18% | 0.04% | 0.17% | -0.35% | |
| NZD | -0.13% | -0.28% | 0.11% | -0.33% | -0.13% | -0.18% | -0.53% | |
| CHF | 0.39% | 0.25% | 0.64% | 0.19% | 0.40% | 0.35% | 0.53% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Technical analysis: USD/CAD forms bearish Head & Shoulders pattern with key support at 1.3725
The broader US Dollar trend remains positive, but the reversal from the 1.3800 area earlier on Monday suggests a Head & Shoulders pattern is in progress. This is a common figure to signal a trend shift and comes after a near 3% USD rally in April.
Immediate support is at 1.3725, which is the neckline of the H&S pattern. Below here, the next support levels are 1.3665 and the target of the figure, coincident with the 50% Fibonacci retracement of the April rally at 1.3620. On the upside, above 1.3800 the focus would shift back to the 1.3850 high.
USD/CAD 4-Hour Chart
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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