- The Canadian Dollar retreats for the second day in a row as markets are risk-averse.
- The BOC sees a period of negative growth on the horizon.
- Despite the weakening economy, BOC policy is hampered by rising inflation risks.
- USD/CAD hits seven-month highs on Wednesday.
The Canadian Dollar (CAD) falls again on Wednesday, adding to yesterday’s declines and sending USD/CAD back to the 1.2800 zone, as the Bank of Canada (BoC) keeps rates stable as markets expected in general.
The Bank of Canada (BOC) kept its main benchmark rate at 5.0% on Wednesday morning as Wall Street broadly predicted, but dovish comments from BOC Governor Tiff Macklem are failing to spark much confidence in the CAD .
The BOC is forecasting “two to three quarters” of negative growth as recession looms over the Canadian economy, and Governor Macklem specifically noted that the chances of a soft landing are starting to diminish.
Risk aversion in the markets is the general tone, as Tuesday’s risk aversion flows continue for the second day in a row, causing a rise in the US Dollar (USD). Crude oil prices, however, are finding a bottom for Wednesday, helping to limit losses for the oil-backed CAD.
Daily Market Summary: Canadian Dollar Falls, Investors Flock on Dollar Index, BOC Fails to Inspire Market
- The BOC will maintain policy rates for the time being, a period of negative growth is expected.
- BOC Governor Macklem warns that excessive public spending will not help curb inflation.
- Distances are shortened to achieve a soft landing, according to the BOC.
- Despite the risks, the BOC does not yet see a “deep recession.”
- Crude oil prices remain in the middle, helping to stem the decline of the CAD.
- Geopolitical tensions in the Middle East keep barrels at a high level, despite the surprising accumulation of crude oil reserves in the United States.
- The Energy Information Administration (EIA) barrel count recorded an unexpected rebound of 1,371 million in US oil reserves.
- USD/CAD will spend the rest of the week reacting to US economic data. The Gross Domestic Product (GDP) and Personal Consumption Expenditure (PCE) figures will be published on Thursday and Friday, respectively.
- Tiff Macklem talks about the policy outlook after the BOC leaves the policy rate unchanged at 5%.
Technical Analysis: USD/CAD nears 1.3810 and remains higher for Wednesday
The Canadian Dollar (CAD) is extending the week’s risk-off pullback as traders turn towards the US Dollar (USD), with the BoC sending USD/CAD to 1.3810 in reaction.
The USD/CAD pair remains just below the 1.3800 area, with Tuesday’s bullish momentum extending yesterday’s bounce from the 200-hour SMA. The USD/CAD pair has reached a new seven-month high.
In the daily candles, USD/CAD continues to push higher, reinforced by a rising 50-day SMA pushing towards 1.3600 on the chart paper. The floor of any bearish correction lies at the 200-day SMA near 1.3475.
The immediate ceiling of a bullish continuation lies at the early March high at 1.3861, and a break of this level would set a new high for the year in USD/CAD as the CAD falters.
Current rate of the Canadian dollar
The following table shows the percentage change of the Canadian Dollar (CAD) against the currencies listed today. The Canadian dollar was the weakest currency against the US dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.23% | 0.31% | 0.32% | 0.70% | 0.09% | 0.61% | 0.36% | |
| EUR | -0.23% | 0.09% | 0.11% | 0.50% | -0.13% | 0.39% | 0.14% | |
| GBP | -0.31% | -0.09% | 0.03% | 0.40% | -0.22% | 0.29% | 0.05% | |
| CAD | -0.34% | -0.11% | -0.03% | 0.39% | -0.25% | 0.27% | 0.02% | |
| AUD | -0.71% | -0.49% | -0.40% | -0.37% | -0.63% | -0.11% | -0.35% | |
| JPY | -0.09% | 0.14% | 0.22% | 0.21% | 0.61% | 0.54% | 0.26% | |
| NZD | -0.60% | -0.39% | -0.30% | -0.28% | 0.11% | -0.52% | -0.26% | |
| CHF | -0.37% | -0.14% | -0.05% | -0.02% | 0.35% | -0.28% | 0.24% |
The heat map shows the percentage changes of the major currencies against each other. The base currency is chosen in the left column, while the quote currency is chosen in the top row. For example, if you choose the euro in the left column and scroll down the horizontal line to the Japanese yen, the percentage change that appears in the box will represent EUR(base)/JPY(quote).
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 largest export product, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canadian exports and that of its imports. Other factors are market sentiment, that is, whether investors are betting on riskier assets (risk appetite) or looking for safe havens (risk aversion), with risk appetite being positive for the CAD. As a major trading partner, the health of the US economy is also a key factor influencing the Canadian dollar.
How do the decisions of the Bank of Canada influence the Canadian dollar?
The Bank of Canada (BoC) significantly influences 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 higher 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 first being negative for the CAD and the second being positive for the CAD.
How does the price of oil influence 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 result in a higher probability of a positive trade balance, which is also support for 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, reducing the value of money, the opposite has actually happened in modern times, with the relaxation of cross-border capital controls. Inflation tends to lead central banks to raise interest rates, which attracts more capital from international 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?
Macroeconomic data releases measure the health of the economy and can influence the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment 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.
