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- Canadian Dollar recoups overnight losses from rising Oil prices
Canadian Dollar recoups overnight losses from rising Oil prices
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Canadian Dollar claws back losses suffered overnight after strong US labor data support the Greenback.
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CAD finds a friend in rising Crude Oil prices after inventory data shows another week of declines.
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USD/CAD trend is now bullish both on shorter and longer time frames after decisive breach of key 1.3270 lower highs.
Canadian Dollar (CAD) recoups overnight losses against the US Dollar (USD), ahead of key employment data on Thursday, on the back of the continued rally in its primary export Oil, which itself sees gains on falling US stockpiles.
USD/CAD is trading in the upper 1.33s on Thursday as the US session gets underway.
Canadian Dollar news and market movers
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The Canadian Dollar trades roughly flat versus the US Dollar on the back of higher Oil prices, Canada’s chief export.
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Oil is rising on the back of data which shows increased demand from summer vacation-driving in the US, according to data from the Energy Information Administration, released Thursday.
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The EIA figures show Crude stockpiles falling by 1.508 million barrels continuing the trend of last week’s 9.603M decline.
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The USD/CAD pair has been helped by a strong rally in the US Dollar on Thursday after US labor market data beat expectations.
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Should the data be followed by a higher-than-expected result for Nonfarm Payrolls in June, out on Friday at 12:30 GMT, the USD could rally further, pushing the pair even higher.
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Canadian employment data, released at the same time, will also impact USD/CAD.
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Economists estimate Net Change in Employment for June to come out at 20K, from -17K in May.
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The Unemployment Rate is forecast to rise to 5.3% from 5.2% previously.
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CAD came under further pressure on Thursday after data showed the Canadian International Merchandise Trade fell to -3.4B vs. 1.5B expected in May, and Imports outweighed Exports when they had been forecast to come out almost equal.
Canadian Dollar Technical Analysis: Short-term trend turns bullish
USD/CAD is in a long-term uptrend on the weekly chart, which began after price rose following the 2021 lows. Since October 2022, the exchange rate has been in a sideways consolidation within the uptrend. Given the old saying that ‘the trend is your friend’, however, the probabilities overall an eventual continuation higher, favoring longs over shorts.
USD/CAD appears to have completed a large measured move price pattern that began forming at the March 2023 highs. This pattern resembles a 3-wave zig-zag, much like an ABC correction in which the first and third waves are of a similar length (labeled waves A and C on the chart below).
The pair’s measured move looks like it has completed given waves A and C are of a similar length. This suggests price probably bottomed at the June 27 lows and is now at the start of a new cycle higher.
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US Dollar vs Canadian Dollar: Weekly Chart
A confluence of support situated under the June lows in the upper 1.3000s, that is made up of several longer moving averages and a major trendline, provides a backstop to further losses. Only a decisive break below 1.3050 would indicate this thick band of weighty support has been definitively broken, bringing the uptrend into doubt.
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US Dollar vs Canadian Dollar: Daily Chart
The daily chart above is looking more bullish, with the move up from the June 27 lows extending to just short of 1.3400. A cursory look at the Relative Strength Index (RSI) indicator shows the move is supported by strong momentum, further enhancing its bullishness.
The price has now broken decisively above the 1.3270 key lower high, confirming a short-term bull trend is now underway. The 1.3400 crossroads where the 50-day Simple Moving Average (SMA) is currently located is the next hurdle.
It will take a decisive break above the 50-day SMA to keep the uptrend momentum going, however, since the break above 1.3270, bulls have the upper hand with the odds favoring a continuation higher.
Nevertheless, a pause in the uptrend before more upside is also likely given the strong run of recent gains, and some backing and filling and a mild correction back down would not come as a surprise.
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.
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