Canadian Dollar gains ground on Thursday as Greenback weakens
- The Canadian Dollar pared back near-term losses on Thursday.
- A broad-market Greenback selloff is pushing the Loonie back into the high end.
- Mid-tier Canadian GDP figures to clash with heavyweight US PCE inflation data on Friday.
The Canadian Dollar (CAD) found room on the high side on Thursday, rising into its highest bids in over a week against the US Dollar (USD) as global markets push away from the Greenback, giving counter-currencies a leg up across the board. From a broader viewpoint, the Greenback has been pushed into multi-year lows, giving the Canadian Dollar the opportunity to test its highest bids against the USD since October of last year.
Canadian Gross Domestic Product (GDP) figures are due on Friday, but the mid-tier data release is unlikely to move Loonie markets. Not only is the single-month sample too small to draw meaningful conclusions from, but it will be overshadowed by Friday’s US Personal Consumption Expenditure Price Index (PCE) inflation data due in the same release window.
Daily digest market movers: Canadian Dollar wins when the Greenback loses
- The Canadian Dollar rose to its highest bids against the US Dollar in over a week, pushing USD/CAD down toward the 1.3600 handle.
- Lacking any immediate crisis in geopolitical headlines, global investor sentiment is on the rise, pushing the Greenback down across the board.
- Recent geopolitical tensions surrounding the Middle East and US trade tariffs have simmered down, giving market participants a chance to resume stepping out of safe havens.
- Canadian GDP figures for the month of April will release on Friday, and are expected to hold stubbornly flat at 0.0% MoM.
- US PCE inflation index figures for the year ended in May will also release on Friday. Core annualized US PCE inflation is expected to climb to 2.6% YoY from 2.5%.
Canadian Dollar price forecast
Fresh gains for the Canadian Dollar on broadbase US Dollar weakness has pushed USD/CAD down toward 1.3600, chalking in a downside rejection of descending trendlines on daily candlesticks. An extended decline, which would see the Loonie gain further ground against the Greenback, will need to break through the last swing low that reversed course just above 1.3500.
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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