Canadian Dollar holds steady as markets roil on US GDP figures
- Canadian Dollar tries to keep a lid on Greenback.
- Canada remains absent from the economic calendar until next week.
- US GDP jumped on shelter and healthcare spending, crimping rate cut bets.
The Canadian Dollar (CAD) heaved on Thursday, tossed around by general market flows as investors reacted to an unexpected surge in US Gross Domestic Product (GDP) figures for the second quarter. Odds of a September rate cut from the Federal Reserve (Fed) are still sky-high and baked in as functionally a sure thing, but some fraying at the edges has seen rate trader bets fall from 100% to 85% overnight.
Canada is absent from the economic calendar until next Wednesday’s GDP print for May and the Canadian week-late S&PJuly Purchasing Managers Index (PMI) print next Thursday. Both data prints are mid-tier, and are unlikely to drive much market momentum, especially with the Fed’s latest rate call on the cards for next Wednesday.
Daily digest market movers: CAD holds in place as Greenback roils on GDP upset
- US Annualized GDP rose to 2.8% in Q2, well above the forecast 2.0% and lurching higher from the previous 1.4%.
- The GDP Price Index eased to 2.3% from the previous 3.1%, even further below the forecast 2.6%.
- US Durable Goods Orders also declined sharply in June, printing a -6.6% decline MoM compared to the forecast 0.3% and previous 0.1%.
- Rate traders were spooked enough to pull back slightly on bets of a Fed September rate cut bet, trimming odds of at least a quarter-point cut on September 18 to 85% from the previous day’s 100%.
- Next up will be US Personal Consumption Expenditures Price Index (PCE) inflation on Friday. Median market forecasts broadly expect (or hope) that YoY PCE inflation will tick down to 2.5% from the previous 2.6%.
Technical analysis: Canadian Dollar pushes back to flat after fear-driven Greenback spike
The Canadian Dollar (CAD) holds close to flat against the Greenback on Thursday and comes in broadly mixed across the market heading into the end of the trading week. The CAD is down around one-fifth of one percent against the Euro (EUR), and up around the same against the Pound Sterling (GBP).
USD/CAD briefly rallied into an eight-month high of 1.38492 before easing back to the 1.3800 handle. 1.3850 proved too heavy a technical barrier for bidders to cross, keeping the pair’s long-running supply zone priced in above 1.3750 intact. With a zone rejection on the cards, the challenge for Greenback buyers will be to prevent an extended backslide to the 200-day Exponential Moving Average (EMA) at 1.3600.
USD/CAD hourly chart
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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