The Canadian Dollar (CAD) eased slightly on Wednesday as overall risk-off flows bump the Greenback higher. Middle East geopolitical tensions and overall investor outlook on upcoming US jobs figures dominate market attention during the midweek market session. A lack of data from Canada leaves the CAD at the mercy of market flows, with US jobs preview figures outpacing forecasts ahead of NFP Friday. Canada released updated Purchasing Managers Index (PMI) to very little fanfare earlier this week, but precursor US Nonfarm Payolls (NFP) figures took center stage on Wednesday as investors grapple with hopes for further Federal Reserve (Fed) rate cuts.
The Canadian Dollar found little momentum on Wednesday, shedding a scant tenth of a percent against the US Dollar. Canada’s S&P PMI in September returned to positive territory above 50.0 for the first time since May of 2023 this week, printing at 50.4 and finding its highest value since March of 2023. Despite the upturned activity outlook, the CAD has found very little bullish momentum. Market participants are grappling with an upshot in US labor figures on Wednesday; US ADP Employment Change figures came in much higher than expected, crimping odds of further jumbo rate cuts from the Fed. CAD traders will have to wait until Friday for any more Canadian economic data, with Canada’s Ivey PMI figures likely to be entirely eclipsed by the hotly-anticipated NFP release.
The Canadian Dollar (CAD) continues to grind out a sideways technical pattern on daily candlesticks; USD/CAD is caught in a volatility trap just south of the 200-day Exponential Moving Average (EMA near the 1.3600 handle, but the Loonie remains unable to break into a fresh bullish rally against the Greenback. In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE), a process by which the Fed substantially increases the flow of credit in a stuck financial system. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. The price of Oil is a key factor impacting the value of the Canadian Dollar, as petroleum is Canada’s biggest export. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases.
Monetary policy in the US is shaped by the Federal Reserve (Fed), with the goal of achieving price stability and fostering full employment. The Fed adjusts interest rates to achieve these goals, with rising rates resulting in a stronger US Dollar. The Federal Reserve holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. Quantitative tightening (QT) is the reverse process of QE, which usually results in a positive impact on the value of the US Dollar.
The key factors driving the Canadian Dollar (CAD) include the level of interest rates set by the Bank of Canada (BoC), the price of Oil, the health of Canada’s economy, inflation, and the Trade Balance. The Bank of Canada influences the CAD by setting interest rates and using tools such as quantitative easing and tightening. Higher Oil prices tend to result in a stronger CAD, as petroleum is Canada’s largest export. Inflation and macroeconomic data releases also impact the CAD, with a strong economy supporting the currency.
Overall, the Canadian Dollar continues to face challenges as it struggles to gain bullish momentum against the Greenback. Investors are closely monitoring US jobs figures and overall market flows, with the looming NFP release on Friday expected to have a significant impact on CAD trading. The Federal Reserve’s monetary policy decisions and key factors such as interest rates, Oil prices, inflation, and economic data releases will continue to play a crucial role in determining the direction of the Canadian Dollar in the coming weeks. As the CAD remains caught in a sideways pattern, traders and investors will be closely watching for any developments that may provide the currency with the necessary impetus to break into a fresh rally.
