Canadian Dollar grinds higher as market pressures ease… for now
- The Canadian Dollar found higher ground against the embattled Greenback.
- A key Fed rate call looms ahead in the midweek and could drive fresh volatility.
- Canadian PM Carney’s joint press conference with US President Trump revealed wide gaps on trade expectations and lack of US clarity.
The Canadian Dollar (CAD) rose against the US Dollar (USD), sending the Loonie into recent highs against the Greenback and pushing the CAD up over one-third of one percent against the USD on Tuesday. Market sentiment found little support after a joint press conference between Canadian Prime Minister Mark Carney and a frazzled United States (US) President Donald Trump, who experienced extreme difficulties delivering a consistent policy direction.
Despite a rough showing from President Trump during a key joint press conference, the Federal Reserve’s (Fed) upcoming rate call on Wednesday is the week’s overarching key event as investors await signs of a pivot toward a rate-cutting cycle from Fed policymakers. Canadian economic data has also begun to soften as a looming economic recession faces growing risks of downward acceleration in the face of a convoluted trade spat with the US.
Daily digest market movers: Canadian Dollar catches a bid on broad-market Greenback weakness
- The Canadian Dollar’s Tuesday gain has pushed USD/CAD into fresh multi-month lows below 1.3800.
- Seasonally-adjusted Canadian Ivey Purchasing Managers Index (PMI) figures from April showed another sharp decline in business conditions expectations, falling back below 48.0 versus the expected 51.2.
- The Fed is broadly expected to keep interest rates on hold on Wednesday, but investors will be scouring statements from Fed officials, and Fed Chair Jeromy Powell specifically, for any signs of a possible pivot toward future rate cuts.
- The joint Carney-Trump press conference went about as well as markets expected.
- According to PM Carney, the currently-standing USMCA trade agreement is a good ‘starting point’, but some things about the agreement will have to change. According to President Trump, USMCA doesn’t need to be renegotiated, but may be renegotiated, but is best for everybody, but still not enough to protect US business interests, all at the same time.
Canadian Dollar price forecast
As the broad-market Greenback selloff continues to grind away, the Canadian Dollar continues to find higher ground against the USD. USD/CAD dipped to a fresh seven-month low on Tuesday, tapping 1.3750 for the first time since October of last year.
Momentum remains largely absent from the USD/CAD chart, and geopolitical shifts will be the key driver for price action looking forward. The pair is still drooping into the south side of the 200-day Exponential Moving Average (EMA) just above 1.4000, and despite a sluggish overall chart setup, bullish bias still tilts in favor of the Loonie for the time being.
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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