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- Canadian Dollar declines after September US JOLTS
Canadian Dollar declines after September US JOLTS
- USD/CAD holds its position above 1.3900, close to its three-month high recorded on Monday.
- Oil prices fall sharply as limited military operations alleviate fears of an all-out war in the Middle East.
- US Dollar strengthens as strong housing figures seem to outshadow soft JOLTs data.
The USD/CAD pair continues to gain traction on Tuesday with the quote rising by 0.23% to 1.3910 at the time of writing. The pair is trading near its three-month high of 1.3908 recorded on Monday and has been supported by a combination of factors, including the USD’s strength and a decline in oil prices.
The Greenback has been strengthening in recent weeks on the back of positive economic data, which has bolstered expectations for interest rate cuts by the Federal Reserve (Fed) in November. US JOLTs data from September came in mixed but somewhat below consensus. On the other hand, several home price indices from August beat expectations, demonstrating continued strength in shelter inflation.
Daily digest market movers: Canadian Dollar pressured by lower Oil prices
- WTI Oil price hovers around $67.50, weighing on the commodity-linked CAD as Canada is a major oil exporter.
- Iran's response to Israeli military actions could further impact oil prices and CAD. However, the lack of response to Israel’s weekend missile strikes has reduced market anxiety.
- BoC Governor Macklem explains that the recent aggressive rate cut was justified, considering previous inflation-fighting hikes.
- BoC aims to find the neutral rate that balances economic stimulation and restraint.
- On the US side, JOLTS Job Openings declined to 7.44 million in September, falling short of market estimates. Hires and total separations in the US economy remained stable, while quits and layoffs showed minimal changes.
- Markets await the Nonfarm Payrolls report from September to be released on Friday. Gross Domestic Product (GDP) revisions on Wednesday will also be important.
AUD/USD technical outlook: Bullish momentum steady despite overbought RSI
The Relative Strength Index (RSI) is currently at 79, indicating that the pair is heavily overbought. The RSI's slope is rising sharply, suggesting that buying pressure is rising. The Moving Average Convergence Divergence (MACD) is green and rising, suggesting that buying pressure is increasing. The overall technical outlook is bullish, but a correction is still possible.
Key support levels are at 1.3870, 1.3850 and 1.3830, while resistance levels are at 1.3900, 1.3915 and 1.3930.
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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