Canadian Dollar slips to 2-year low as markets lose interest in Loonie
- The Canadian Dollar stumbled into a fresh 25-month low against the Greenback.
- Canada is thinly-represented on the economic calendar this week and next.
- A lack of meaningful Canadian data and a surging US Dollar keep the Loonie pinned.
The Canadian Dollar (CAD) continued to shed weight against the Greenback, testing a fresh 25-month low against the globally-dominant US Dollar as Loonie traders continue to lose interest in the CAD. The economic calendar remains suppressively thin on the Canadian side, and a broad-market rally underpinning the Greenback has bolstered the USD/CAD pair into multi-year highs and inching toward 1.4000.
With Canada mostly absent from the economic data docket this week, Loonie traders will be forced to the sidelines as Greenback flows take over market momentum. Canadian Consumer Price Index (CPI) inflation figures are on the docket for next week, but not until Tuesday.
Daily digest market movers: Canadian Dollar sheds value as Greenback climbs
- The Canadian Dollar is poised to backslide another fifth of a percent against the US Dollar on Tuesday.
- A lack of CAD-centric economic calendar activity this week has the Loonie playing second fiddle to the Greenback.
- The US economic calendar is equally thin on Tuesday, though markets are gearing up for Wednesday’s US Consumer Price Index (CPI) inflation update.
- Headline US CPI is expected to rise to 2.6% YoY from 2.4%, core CPI forecast to hold steady at 3.3% YoY.
- An upswing in US consumer-level inflation could rattle market confidence in one last rate cut from the Federal Reserve (Fed) in 2024.
Canadian Dollar price forecast
The Canadian Dollar (CAD) is poised to return to its losing ways against the US Dollar this week; after snapping a five-week losing streak by closing slightly higher last Friday, weakness has returned to Loonie flows. The Greenback is mounting the steps into a multi-year high, sending the USD/CAD pair into a 25-month peak bid 1.3970.
Despite a brief test into multi-year highs, USD/CAD bidders haven’t yet managed to break free of near-term consolidation as price action waffles near 1.3950. Short interest still has time to collect from here and send the pair into a fresh leg down back toward the 200-day Exponential Moving Average (EMA) near 1.3660.
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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