- The Canadian Dollar is treading water after an extended weekend.
- Crude Oil is seeing thin action for Tuesday, sapping momentum from the Loonie.
- The broad-market focus remains on Gaza Strip geopolitics.
The Canadian Dollar (CAD) traded mostly flat against the US Dollar (USD) through the Tuesday market session, with only minor moves on the top and bottom ends. The pair set an early-day low of 1.3569 before rebounding to 1.3617, and the USD/CAD is now bouncing around the middle, heading into Wednesday's market sessions near 1.3585.
Canada's economic data remains thin for the trading week’s release schedule, leaving the CAD exposed to US Dollar flows and broader investor sentiment.
Market focus remains firmly planted on the ongoing Gaza Strip escalation following Israel’s ongoing response to Hamas rocket attacks over the weekend. Investors are keeping an eye out for any geopolitical spillover from the Israel-Hamas conflict spreading to nearby Middle East countries.
Daily Digest Market Movers: Canadian Dollar sees little momentum for Tuesday
- CAD flat for Tuesday as investors wait for headlines.
- Crude Oil is trading softly back, keeping the Loonie constrained.
- Broad-market sentiment is recovering cautiously from the weekend’s geopolitical escalation.
- USD/CAD traders will be looking ahead to Wednesday Producer Price Index (PPI) figures for the US; expected to show a slight increase year-on-year from 2.2% to 2.3%.
- Inflation remains a key focus for markets as investors hope for signs that the US Federal Reserve (Fed) will get pushed to making rate cuts sooner.
- Thursday brings US Consumer Price Index (CPI) numbers, markets looking for a month-on-month decline from 0.6% to 0.3%.
- Crude Oil’s price jump on-reaction to Gaza Strip conflict is unlikely to spark long-term moves.
- Oil market suppliers are struggling to meet global demand, but a massive overhang in refined gasoline reserves is pressuring prices back down.
Technical Analysis: Canadian Dollar seeing minor gains, USD/CAD struggling to hold 1.36
The USD/CAD pair is testing lower but still firmly planted between Tuesday’s top and bottom, though a minor uptick for the Canadian Dollar saw the pair shed pips from the 1.3600 level. The USD/CAD is now retesting into the low side of the 1.3600 handle heading into the Wednesday trading session.
The Greenback-Loonie pair tumbled below the 200-hour Simple Moving Average (SMA) near 1.3640 in Monday’s trading, and the pair is struggling to develop a rebound.
Daily candlesticks see the USD/CAD declining for three straight days, down nearly 1.5% from the last high of 1.3785, and a continued decline will set the pair for a challenge of the 50-day SMA near 1.3536.
Canadian Dollar FAQs
What key factors drive the Canadian Dollar?
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.
How do the decisions of the Bank of Canada impact 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.
How does the price of Oil impact the Canadian Dollar?
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.
How does inflation data impact the value of the Canadian Dollar?
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.
How does economic data influence the value of 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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD turns sideways below 1.0900 ahead of Fedspeak
EUR/USD is trading sideways below 1.0900 in European trading on Monday, despite a risk-on market mood. The pair, however, finds support from the struggling US Dollar and sluggish US Treasury bond yields, awaiting Fedspeak amid light European trading.
Gold price consolidates near $2,450, fresh record highs
Gold price holds its upbeat momentum intact on Monday, sitting at fresh record highs of $2,450 in the European session. The bright metal benefits from renewed hopes for Fed rate cuts and renewed geopolitical tensions surrounding Iran. Fedspeak is next on tap.
GBP/USD holds steady near 1.2700, Fedspeak in focus
GBP/USD is off the highs, consolidating near 1.2700 in the European trading hours on Monday. A subdued US Dollar supports the pair amid moderate risk appetite. Traders stay cautious on potential geopolitical escalation in Iran and ahead of Fedspeak.
Ripple stays above $0.50 on Monday as firm backs research on blockchain and quantum computing
XRP price holds steady above the $0.50 key support level and edges higher on Monday, trading at 0.5130 and rising 0.70% in the day at the time of writing.
Week ahead: Nvidia results and UK CPI falling back to target
What a week for investors. The Dow Jones reached a record high and closed last week above 40,000, for the first time ever. This is a major bullish signal even though gains for global stocks were fairly modest on Friday, and European stocks closed lower.