- Canadian Dollar back into recent lows as Crude Oil prices tumble on Friday.
- Canadian GDP missed market expectations, economic growth came in flat.
- USD/CAD etches in a new high for the week as CAD slips, US Dollar recovers.
The Canadian Dollar (CAD) saw both a new high and a new low against the US Dollar (USD) on Friday, with the USD/CAD slumping to a session low of 1.3417 before rebounding to reclaim the 1.3500 handle and mark in a new weekly high at 1.3540.
Canadian Gross Domestic Product (GDP) figures failed to meet market expectations, with the headline figure printing flat at 0.0% for the month of July versus the previous month’s 0.2% contraction. Markets were forecasting a meager 0.1% uptick in Canadian GDP.
Tightly wound Oil prices that have been bolstering the Canadian Dollar went slack in Friday trading, easing upside pressure on the CAD in tandem with an intraday rebound in the US Dollar Index (DXY).
Daily Digest Market Movers: Canadian Dollar whipsaws on Friday
- Friday chart action sees the USD/CAD engulf the entire week’s trading range.
- The CAD saw gains against the US Dollar through the first half of the day’s trading window.
- A broad-market reversal in USD appetite, coupled with a fallback in Crude Oil spot prices sent the Canadian Dollar skidding.
- The USD/CAD heads into the end of the trading week looking for 1.3550.
- Crude support for the Canadian Dollar evaporated when WTI US crude barrels tumbled from $92 to sub-$90.
- Oil has recovered to $90.50, but broad-market US Dollar flows have taken over chart control, keeping the USD/CAD on the high end to close out Friday.
- Investors will be looking ahead to Monday’s Manufacturing Purchasing Manager Index (PMI) figures for both the Canadian Dollar and the USD.
Technical analysis: Canadian Dollar takes a tumble
The Canadian Dollar (CAD) whipsawed on Friday, claiming the trading week’s high and low in a single day as the USD/CAD roiled under shifting market sentiment.
The USD/CAD fell 70 pips, or half a percent, to 1.3420 in the first half of Friday’s trading, before rebounding to chalk in a new high for the week at 1.3543. The USD/CAD rebound was over 120 pips, or 0.90%.
Hourly candlesticks have the USD/CAD shaking out of a holding pattern wrapped around the 200-hour Simple Moving Average (SMA) near 1.3480 with the 1.3500 major handle acting as a sticking point for the pair.
Friday’s volatility sees technical indicators breaking, with the Relative Strength Index (RSI) rolling over from oversold to nearly overbought within a matter of hours.
On the daily candlesticks, the USD/CAD has recovered back to the topside of the 34-day Exponential Moving Average at the 1.3500 handle. Buyers will be looking to gain further ground towards the September peak near 1.3700, and put some distance between current prices and the 200-day SMA currently parked near 1.3450.
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.