- The Canadian dollar is on the decline as investors look more closely at inflation data.
- Canada gets a new BoC rate decision next week.
- After a brief period of weakness in Canadian inflation, the BoC could have cut rates prematurely.
He Canadian Dollar (CAD) The dollar lost weight on Wednesday as investors review Canadian Consumer Price Index (CPI) inflation figures released earlier in the week. Despite an overall decline in headline inflation figures thanks to easing pressures in weighted inflation measures, core inflation indicators remained higher. The Bank of Canada (BoC) will release its latest rate decision next week.
Canada’s central bank is likely to cut interest rates next Wednesday as the BoC rushes to ease price pressures in the Canadian real estate investment market. Canada’s real estate sector accounts for about 9% of the country’s total economic output, almost double the OECD average of 4.8%.
Daily Market Wrap: Canadian Dollar Stumbles as Markets Assess Inflation Chances
- This week’s key Canadian CPI inflation data cooled, but only on a headline basis, as underlying inflation indicators continue to hint at a pick-up.
- Overall CPI inflation eased to 2.7% on an annualized basis in June from 2.9% previously, but Canadian trimmed average CPI inflation is holding steady at 2.9% on an annualized basis. BoC core CPI inflation in June actually rose to 1.9% on an annualized basis from 1.8%.
- The BoC was quick to cut rates in June after a brief period of weakness in inflation numbers, and has previously committed to several more rate cuts, making it difficult for the BoC to maintain a data-dependent policy stance.
- Housing, food, telecommunications and internet costs, supermarket fees and rents are all rising again now that industry leaders are no longer making headlines for previous price increases.
- As Derek Holt of Scotiabank Economics noted, “The BoC will likely cut next week, but choosing to do so would put all faith in the BoC’s dubious forecasting skills while sidelining reliance on the latest data and information about the evolving shock to global supply chains that may matter to a trade-dependent country like Canada.”
Canadian Dollar PRICE Today
The table below shows the exchange rate of the Canadian Dollar (CAD) against major currencies today. The Canadian Dollar was the strongest currency against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.26% | -0.24% | -1.28% | 0.20% | 0.17% | -0.30% | -1.02% | |
| EUR | 0.26% | 0.04% | -1.02% | 0.46% | 0.42% | -0.07% | -0.76% | |
| GBP | 0.24% | -0.04% | -1.06% | 0.43% | 0.39% | -0.11% | -0.79% | |
| JPY | 1.28% | 1.02% | 1.06% | 1.50% | 1.49% | 0.98% | 0.30% | |
| CAD | -0.20% | -0.46% | -0.43% | -1.50% | -0.04% | -0.52% | -1.21% | |
| AUD | -0.17% | -0.42% | -0.39% | -1.49% | 0.04% | -0.48% | -1.18% | |
| NZD | 0.30% | 0.07% | 0.11% | -0.98% | 0.52% | 0.48% | -0.70% | |
| CHF | 1.02% | 0.76% | 0.79% | -0.30% | 1.21% | 1.18% | 0.70% |
The heatmap shows percentage changes of major currencies. The base currency is selected from the left column, while the quote currency is selected from the top row. For example, if you choose the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change shown in the chart will represent the CAD (base)/USD (quote).
Technical Analysis: Canadian Dollar Pulls Back, Giving USD/CAD a Boost Back To 1.3700
The Canadian Dollar (CAD) lost ground across the board on Wednesday, falling a fifth of a percentage point against the US Dollar (USD), and losing four-tenths of a percentage point against the Euro (EUR) and British Pound (GBP). Elsewhere, broad recoveries in the Japanese Yen (JPY) and Swiss Franc (CHF) mean the CAD gives up ground on the day’s strong performances, falling -1.55% and 1.25%, respectively.
The USD/CAD has received a boost back to the 1.3700 zone, strengthening the pair from an intraday low at the 200-hour exponential moving average (EMA) at 1.3656. The short-term momentum has tilted towards the bullish side in favor of the US dollar against the Canadian dollar as CAD bidders disappear into the ether.
USD/CAD Hourly Chart
USD/CAD Daily Chart
The Canadian Dollar
The key factors determining 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, 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 include market sentiment, i.e. whether investors are betting on riskier assets (risk-on) or looking for safe assets (risk-off), with 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 generally 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 rises as well, 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 occurred in modern times, with the relaxation of cross-border capital controls. Higher inflation typically leads central banks to raise interest rates, which attracts more capital inflows from global investors looking for a lucrative place to store their money. This increases demand for the local currency, which in Canada’s case is the Canadian dollar.
The released macroeconomic data measures 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 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 can encourage the Bank of Canada to raise interest rates, which translates into a stronger currency. However, if the 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.
