- The Canadian dollar rises on Monday, with widespread buying.
- Canadian economic data is sparse this week, but BoC Governor Tiff Macklem will appear on Friday.
- US CPI inflation, the Fed’s rate decision and the outlook for interest rates will be the focus of the week.
The Canadian Dollar (CAD) moves higher on Monday, taking a small but large step forward against major currencies, as markets prepare for a busy week that will see several high-profile developments at central banks across the country. towards the end of the business year.
Canada is largely absent from this week’s economic data agenda, with only a handful of low-level data reported late on Thursday and Friday. The only event worth mentioning will be the appearance of Tiff Macklem, Governor of the Bank of Canada (BoC), scheduled for the end of Friday. The text of the speech will be published fifteen minutes in advance.
During this week, attention will focus on the actions of central banks, with the publication on Tuesday of the US Consumer Price Index (CPI), which will give the starting signal to US inflation. Wednesday will be especially important for the US dollar when the US Federal Reserve (Fed) releases its latest rate decision, with markets generally expecting rates to remain between 5.25% and 5.5%.
The US Federal Open Market Committee (FOMC) will release its updated economic forecasts alongside its monetary policy statement, and investors will be closely watching any changes to the FOMC’s interest rate forecasts, known as “the dot graph”. The Fed’s Monetary Policy statement and rate decision are scheduled for 19:00 GMT on Wednesday, with the FOMC press conference thirty minutes later at 19:30 GMT.
Daily Market Summary: Canadian Dollar Rising Strongly on Monday
- The Canadian Dollar begins the week with gains and advances more than 1% against the Japanese Yen (JPY).
- Against the Australian Dollar (AUD) and the New Zealand Dollar (NZD), the CAD advanced 0.33% and 0.16% respectively.
- On Tuesday, markets will focus on the US CPI release.
- Markets expect US core CPI to rise and annualized inflation to remain stable.
- US CPI month-on-month inflation is expected to rise from 0.0% to 0.1% in November, and year-on-year inflation is expected to decline from 3.2% to 3.1%.
- The US core CPI for November is expected to be 0.3%, up from 0.2% in October, and consumer price growth core CPI (which excludes food and energy prices) is expected to slow. remain stable at 4% annually in November, well above the 2% target set by the Fed.
- Markets could see positioning changes as investors will value Wednesday’s Fed forecasts based on Tuesday’s CPI inflation.
USD/CAD Technical Analysis
The Canadian Dollar (CAD) is on the rise on Monday, with slight but decisive gains against the US Dollar (USD) to keep the USD/CAD pair pinned below the 1.3600 zone.
On the 1-hour chart, the USD/CAD pair is consolidating between the 50 and 200 hourly simple moving averages (SMA), near 1.3585 and 1.3570, respectively. The move has been within last week’s range between 1.3620 and 1.3560.
The daily chart has USD/CAD wavering just above the 200-day SMA near 1.3515, and the price action is set to see some sharp pullbacks with the pair stuck between the 200-day SMA and the 50-day SMA about 1,300.
USD/CAD 1-hour chart
USD/CAD daily chart
Frequently Asked Questions about the Canadian Dollar
What factors determine the price of the Canadian dollar?
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.
How do Bank of Canada decisions affect 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.
How does the price of oil affect the Canadian dollar?
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.
How does inflation data influence the value of the Canadian Dollar?
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.
How does economic data influence the value of 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.
