The Canadian Dollar (CAD) saw some recovery on Wednesday, but still has some red spots after the Greenback gained momentum following the US Consumer Price Index (CPI) release. Canada has been absent from the economic calendar this week, with only low-tier data being released. This has left the CAD at the mercy of market flows, with traders anxiously waiting for next week’s Bank of Canada (BoC) CPI inflation print.
The US CPI inflation figures cooled in line with market forecasts, leading to a slight decline in the Canadian Dollar against the Greenback. Investors had expected further declines after this week’s US PPI inflation figures tumbled. However, the US CPI inflation remained as anticipated, with core CPI ticking down to 3.2% year-on-year and both headline and core CPI rising by 0.2% month-on-month. The annualized CPI also dropped to 2.9% in July, below the expected 3.0%.
On the currency board, the Canadian Dollar remains constrained by the US Dollar, with losses against the Greenback trading within 0.1% during the midweek session. While the USD/CAD pair is currently below the 50-day Exponential Moving Average (EMA), Greenback sellers have not been able to extend the CAD’s recovery and push USD/CAD bids down to the 200-day EMA at 1.3632. The CAD win streak is poised to falter near the 1.3700 level.
Key factors influencing the Canadian Dollar include the Bank of Canada’s interest rates, the price of Oil, Canada’s economy health, inflation, and the Trade Balance. Market sentiment, particularly risk-on vs. risk-off, also impacts the CAD. The BoC’s decisions on interest rates play a significant role in the CAD’s value, with higher interest rates generally being positive for the currency. Oil prices, as Canada’s largest export, directly impact the CAD value, with higher oil prices usually leading to a stronger CAD.
Inflation, once considered negative for a currency, now influences the Canadian Dollar positively due to increased capital inflows from higher interest rates. Macroeconomic data releases, including GDP, PMIs, employment, and consumer sentiment surveys, also play a role in determining the CAD’s direction. A strong economy is beneficial for the Canadian Dollar as it attracts foreign investment and may lead to interest rate hikes. However, weak economic data can result in the CAD depreciating.
