USD/CAD holds positive ground near 1.3650 on better-than-expected US jobs data
- USD/CAD posts modest gains around 1.3645 in Wednesday’s early Asian session.
- US JOLTS Job Openings rose to 7.76 million in May, stronger than expected.
- Traders brace for the US June ADP Employment Change report, which is due later on Wednesday.
The USD/CAD pair trades with mild gains near 1.3645 during the early Asian session on Wednesday. The US Dollar (USD) pares losses against the Canadian Dollar (CAD) after data showed a better-than-expected increase in labor market demand. The US ADP Employment Change report for June will take center stage later on Wednesday.
US job openings unexpectedly rose in May, which provides some support to the Greenback as the Federal Reserve (Fed) will likely take its time to cut interest rates. US JOLTS Job Openings climbed to 7.76 million in May, compared to 7.395 million openings reported in April. This figure came in above the market expectation of 7.3 million.
Fed Chair Jerome Powell reiterated that the US central bank will wait for more data before it starts monetary policy easing, but he did not rule out a rate reduction in the July meeting, per Reuters. The Fed decided to hold the key borrowing rate steady again last month, keeping fed funds at the same range between 4.25% and 4.5%, where it’s been since December.
Meanwhile, Crude Oil prices lose ground amid easing Middle East geopolitical risks and a potential OPEC+ output increase in August. This could undermine the commodity-linked Loonie. However, the rebound in Crude Oil prices might cap the upside for the pair, as Canada is the largest oil exporter to the US, and higher crude oil prices tend to have a positive impact on the CAD value.
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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