The Canadian Dollar (CAD) struggled to gain momentum on Monday due to a lack of significant economic data and uneventful appearances by the US Federal Reserve (Fed) Chairman Jerome Powell. With Canada largely absent from the economic calendar this week, the CAD has moved towards the middle against the US Dollar (USD), leaving it vulnerable to broader market flows. Fed Chair Powell’s testimony before US Congressional committees provided little new information, causing investors to interpret his remarks as more hawkish than expected. This translated into a decrease in risk appetite and a boost for the USD.
Looking ahead, the only economic data point from Canada this week will be May’s Building Permits on Friday, but it is not expected to have a major impact on the market. Fed Chair Powell is scheduled to deliver the second half of the Fed’s Monetary Policy Report to the Congressional House Committee on Financial Services on Wednesday, with no changes in rhetoric anticipated. Later in the week, the US will release June’s Consumer Price Index (CPI) and Producer Price Index (PPI) inflation data, with forecasts suggesting little change from previous periods. Meeting these expectations could lead to disappointment in markets that are anticipating a rate cut from the Fed in September.
On the technical side, USD/CAD is trading around 1.3640, struggling to break above 1.3650. The daily candlesticks are caught between the 200-day EMA at 1.3590 and a supply zone around 1.3750, indicating a period of congestion. While last week’s rebound from the swing low towards 1.3600 failed to push the pair above the 200-hour EMA at 1.2656, the bid pressure remains high enough to prevent a decline into new lows.
Factors that drive the Canadian Dollar include interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the country’s economic health, inflation, and the Trade Balance. Additionally, market sentiment, the US economy, and macroeconomic data releases play a significant role in influencing the cad’s value. The BoC has a substantial influence on the CAD by adjusting interest rates to maintain inflation between 1-3%. Higher interest rates are typically positive for the CAD. The price of Oil also impacts the CAD as Canada’s major export, with higher Oil prices generally leading to a stronger CAD. Inflation, macroeconomic data releases, and market sentiment all contribute to the overall movement of the Canadian Dollar.
