- The Canadian dollar lost four tenths of a percent against the US dollar.
- Data from Canada remains limited following the BoC’s latest rate cut.
- Shaky market concerns following rising US PPI inflation keep the USD afloat.
The Canadian Dollar (CAD) failed to stay afloat on Thursday, eventually falling another 0.4% against the US Dollar, considered a safe haven. Markets hesitated after US Producer Price Index (PPI) inflation figures accelerated more than expected, keeping risk appetite low and pushing the CAD to new multi-year lows.
The latest rate cut from the Bank of Canada (BoC) earlier this week has eliminated any bullish momentum from CAD markets, leaving the Canadian Dollar at its lowest prices in 56 months. The Canadian dollar is now within touching distance of prices not seen since March 2020.
Daily Market Summary: US PPI rises, CAD falls
- The Canadian Dollar’s pullback on Thursday has strengthened the USD/CAD chart, pushing the pair above 1.4200.
- US PPI inflation accelerated to 0.4% monthly in November, above the forecast of 0.2%.
- US PPI core inflation rose to 3.4% year-on-year, beating the forecast of 3.2% and further moving away from 3.1% in the previous period.
- Rising inflation pressures in the US at the producer level generated caution in investor sentiment.
- The BoC’s latest rate cut dragged Canada’s main benchmark rate from 3.75% to 3.25%, leaving the CAD with little structural support as interest rate differentials widen.
Canadian Dollar Price Forecast
The Canadian Dollar has given fresh bearish momentum, strengthening the USD/CAD chart to new multi-year highs above 1.4200. USD/CAD is now on track to close higher for the fourth consecutive month, and the pair is up just over 6% from September bid lows near 1.3420.
USD/CAD Daily Chart
The Canadian Dollar FAQs
The key factors that determine the price of the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of oil, Canada’s main export product, the health of its economy, inflation and the trade balance, which is the difference between the value of Canadian exports and its imports. Other factors are market confidence, that is, whether investors bet on riskier assets (risk-on) or look for safe assets (risk-off), with the risk-on being positive for the CAD. 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) exerts significant influence over the Canadian Dollar by setting the level of interest rates that banks can lend to each other. This influences the level of interest rates for everyone. The BoC’s main objective is to keep inflation between 1% and 3% by adjusting interest rates up or down. Relatively high interest rates are usually positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former being negative for the CAD and the latter being positive for the CAD.
The price of oil is a key factor influencing the value of the Canadian Dollar. Oil is Canada’s largest export, so the price of oil tends to have an immediate impact on the value of the CAD. Generally, if the price of oil rises, the CAD also rises, as aggregate demand for the currency increases. The opposite occurs if the price of oil falls. Higher oil prices also tend to lead to a higher probability of a positive trade balance, which also supports the CAD.
Although inflation has traditionally always been considered a negative factor for a currency, as it reduces the value of money, the opposite has actually happened in modern times, with the relaxation of cross-border capital controls. Higher inflation often leads central banks to raise interest rates, attracting more capital inflows from global investors looking for a lucrative place to store their money. This increases the demand for the local currency, which in the case of Canada is the Canadian Dollar.
The published macroeconomic data measures the health of the economy and may have an impact on the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer confidence surveys can 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 raise interest rates, resulting in a stronger currency. However, if economic data is weak, the CAD is likely to fall.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
