Canadian Dollar continues slow grind lower on Thursday
- The Canadian Dollar shed another 0.1% on Thursday as buyers evaporate.
- Canada remains open for business while the US is taking the day off.
- Holiday-thinned markets are doing few favors for the Loonie except slow the bleed.
The Canadian Dollar (CAD) chalked in a third straight losing day against the US Dollar on Thursday, falling for a third straight day and highlighting the Loonie’s ability to lose ground against the Greenback even when US markets aren’t open.
Thursday was yet another slim showing for Canadian data on the economic calendar. CAD traders will be looking ahead to Friday’s release schedule with Canadian labor and wages data on the offering. However, most of the market will be looking forward to Friday too, with another round of US Nonfarm Payrolls (NFP) jobs data on the docket as well.
Daily digest market movers: CAD markets pull back slightly ahead of key labor print
- The Loonie’s ability to lose ground while everyone else is on holiday is nothing short of remarkable.
- US markets are shuttered in observation of a day of mourning in honor of the passing of former President Jimmy Carter, who died at age 100 in December.
- Canadian Net Change in Employment, due on Friday, is unlikely to spark much faith in the CAD as the figure is expected to decline by half, from 50.5K in November to 25K in December.
- The Canadian Unemployment Rate is also expected to tick higher from 6.8% to 6.9%.
- On the US side of things, US NFP net jobs additions are expected to ease back to 160K in December from the previous 227K, and traders will be keeping an eye out for any sharp revisions.
- The US Michigan Consumer Sentiment Index is also expected to slip for the first time in six months, but only slightly.
- A wide range of tepid to softening data could could broader market flows firmly planted on the buy side of the Greenback, further hobbling the Loonie.
Canadian Dollar price forecast
The Canadian Dollar remains caught in a tight spiral against the US Dollar, trading into multi-year lows and keeping the USD/CAD pair bolstered into the 1.4400 region. CAD weakness has been the name of the game, sending the Greenback to its highest bids against the Loonie since the pandemic.
USD/CAD is up over 7% from September’s low end near 1.3400, and although it looks like the CAD isn’t going to lose any more ground for the time being, Loonie bidders remain unable to prop things up and get the pair pushed back down below 1.4300. The immediate barrier to a CAD recovery will be the 50-day Exponential Moving Average (EMA) climbing into 1.4200, putting a technical floor underneath the Greenback.
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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