The Canadian Dollar (CAD) had a mixed day on Friday, weakening against most currencies but gaining ground against the US Dollar (USD). This was in part due to an improvement in overall risk sentiment as positive US data helped ease fears of a potential recession. Looking ahead, Canada is set to release its latest Consumer Price Index (CPI) figures next week, which will be closely watched by CAD traders to gauge the health of the Canadian economy.
On Friday, the University of Michigan’s Consumer Sentiment Index surpassed expectations, rising to 67.8 in August from 66.4 in the previous month. This boosted market sentiment and led to increased selling pressure on the Greenback. Additionally, Consumer 5-year Inflation Expectations remained steady at 3.0% in August. As the Jackson Hole Symposium approaches next week, CAD traders will be keeping an eye on central bank policymakers’ speeches for potential market-moving insights.
The Canadian Dollar saw a boost on Friday as the weakening Greenback pushed USD/CAD below the 1.3700 handle, reaching a three-week high. The pair faced resistance at the 50-day Exponential Moving Average (EMA) at 1.3728, with price action consolidating between the 50-day EMA and the 200-day EMA at 1.3634. This technical rejection indicates potential near-term highs for the CAD.
Key factors affecting the Canadian Dollar include interest rates set by the Bank of Canada (BoC), the price of Oil, the health of the Canadian economy, inflation, and the Trade Balance. The BoC’s decisions on interest rates play a significant role in influencing the CAD’s value, with higher rates typically being positive for the currency. Additionally, Oil prices directly impact the CAD as Canada’s main export, with higher prices generally leading to a stronger CAD.
Inflation, traditionally seen as negative for a currency, can actually be positive for the CAD in modern times due to increased capital inflows in response to higher interest rates. Macroeconomic data releases like GDP, PMIs, employment figures, and consumer sentiment surveys also play a role in determining the CAD’s direction. A strong economy is favorable for the Canadian Dollar, attracting foreign investment and potential interest rate hikes by the BoC, leading to a stronger currency. Conversely, weak economic data can weigh on the CAD.
