Canadian Dollar falls for a fourth straight session as markets get tariff tunnel vision
- The Canadian Dollar backslid further on Monday, falling over 0.5% against the Greenback.
- Market sentiment is broadly catching a bid as tariffs dominate the headlines.
- Loonie markets are taking a backseat during a data-light week for the CAD.
The Canadian Dollar (CAD) fell further on Monday, shedding around one-half of one percent against the US Dollar (USD) as investors broadly bid up the Greenback after the Trump administration proudly announced that they would be walking back their own triple-digit tariffs on Chinese imports. Initial trade talks between the US and China over the weekend resulted in a 90-day reprieve from US tariffs on Chinese goods that reached 145% through April. The US will still be maintaining a 30% tariff on most Chinese imports, and China will be sticking to its own 10% tariff on goods imported from the US as the two countries agree to head to the negotiating table for further trade discussions in the coming months.
It’s a thin showing on the economic data docket for the Canadian Dollar this week. The Loonie is poised to continue getting tossed around by general market sentiment. With the Greenback set to continue gaining ground across the board on recovering market sentiment, the CAD is exposed to further declines barring any significant shifts in market fundamentals.
Daily digest market movers: Canadian Dollar extends losses as market sentiment bolsters Greenback
- The Canadian Dollar fell 0.5% against the US Dollar, pushing USD/CAD up to the 1.4000 handle and putting the pair on pace to take a fresh run at the 200-day Exponential Moving Average (EMA) near 1.4030.
- US tariffs on Chinese goods are set to sink to 30% from 145% beginning on Tuesday.
- This week’s economic data docket is overwhelmingly tilted toward the US Dollar this week, with strictly low-tier data releases for the Canadian Dollar scattered throughout the week.
- Key US Consumer Price Index (CPI) inflation data will land on Tuesday as markets keep an eye out for signs of sharp inflation spikes due to US trade tariffs.
- US Producer Price Index (PPI) inflation and Retail Sales figures loom ahead on Thursday.
- Median market forecasts are hoping for a turnaround in University of Michigan Consumer Sentiment Index figures to round out the week on Friday.
Canadian Dollar price forecast
A four-day (and counting) losing streak for the Canadian Dollar has pushed the USD/CAD pair back into challenge territory of key long-term moving averages, and the Loonie could be on pace to kick off another long-term move to the low end. Bullish rotations on the USD/CAD chart have tended to support a long-term bull trend on the chart that has persisted since mid-2021.
Despite odds tilting firmly in the Greenback’s favor, technical oscillators have quickly pivoted into overbought territory, implying a reprieve in Greenback bidding could be on the cards before another leg higher.
USD/CAD daily 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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