Canadian Dollar churns on data-light Tuesday

• The Canadian Dollar held steady in the face of improving US labor data.
• Canada lacks impactful data until Friday’s wages and employment change figures.
• US NFP net job additions loom ahead at the end of the week, overshadowing CAD data.

The Canadian Dollar (CAD) tread water on Tuesday, wrestling to either side of the day’s opening bids before settling in the midrange. The US Dollar saw some bidding action after US job openings numbers beat the street, and the Loonie is struggling to find much interest with a lack of noteworthy releases on the data docket this week.

Canada remains largely absent from the economic calendar this week, albeit with a smattering of low-tier releases around the midweek. Canadian wages and employment change figures are due on Friday, though the Canadian side of the data docket will be eclipsed by US Nonfarm Payrolls (NFP) figures due at the same time.

Daily digest market movers: Canadian Dollar lacks momentum amid tepid releases

• The Canadian Dollar churned around the day’s opening bids before shedding around one-sixth of one percent late on Tuesday.
• US JOLTS Job Openings rose more than expected, bolstering the healthy outlook of the US labor market.
• Investors will be pivoting to key labor data throughout the week, including ADP Employment Change figures slated for Wednesday.
• The latest US NFP data dump is due on Friday.
• US NFP job additions will swamp out market impact from Canadian Net Change in Employment figures for November, also due on Friday.

Canadian Dollar price forecast

With the Canadian Dollar (CAD) at the mercy of broad-market flows into and out of the Greenback, the Loonie is set to continue grinding out chart paper near multi-year lows. USD/CAD remains buoyant above the 1.4000 handle, though the pair has yet to reclaim territory near last week’s spike into 55-month highs above 1.4150.

The Greenback’s one-sided bullish trend against the waffling Canadian Dollar has dragged the pair deep into overbought territory, and the Loonie is on pace to close lower against the US Dollar for all but two of the last ten consecutive trading weeks. However, long-term and position traders will note that USD/CAD is knocking on the high end of a long-term sideways pattern going back nearly a decade that only materializes when you zoom out to weekly candles or above.

USD/CAD daily chart

Canadian Dollar FAQs

What key factors drive the Canadian Dollar?

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.

How do the decisions of the Bank of Canada impact 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.

How does the price of Oil impact the Canadian Dollar?

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.

How does inflation data impact the value of the Canadian Dollar?

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.

How does economic data influence the value of 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.

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