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- Broad market risk appetite is recovering on Friday as US PCE inflation eases.
- Canada saw a weaker-than-expected recovery in GDP.
- US PCE inflation fell further, raising hopes for lower interest rates.
The Canadian dollar (CAD) rose broadly on Friday, but gains were halted after a lower-than-expected reading in Canadian economic data. Investors’ hopes for a September interest rate cut rise after US personal consumption expenditures (PCE) data Price index Inflation has fallen faster than expected, and price markets are once again pricing in the prospects of a Fed rate cut.
Canada saw a smaller rebound in quarterly GDP growth than markets expected, limiting overall gains for the Canadian dollar. With US inflation headlines leading the broader markets, risk sentiment is on the high side to conclude the week and investors will turn to the Bank of Canada (BoC) interest rate decision next week, as well as a set of US Purchasing Managers’ Index (PMI). Printouts and other non-farm payrolls are in the tube for next Friday.
Daily summary of market drivers: Canadian dollar supported by rising risk appetite
- Canadian GDP rebounded in the first quarter to its highest growth rate in a year, rising 1.7% quarter-on-quarter, despite market expectations that came in below 2.2%.
- The previous quarter’s GDP was also revised sharply to just 0.1% versus the initial reading of 1.0%.
- The core US PCE price index rose 0.2% month-on-month in April, below expectations of 0.3%.
- US personal spending fell sharply in April, coming in at 0.2% versus expectations of 0.3%, and even further than the previous reading of 0.7% (revised from 0.8%).
- According to the Chicago Mercantile Exchange’s FedWatch tool, rate markets now place odds at 56% for a rate cut of at least a quarter of a percentage point from the Fed in September.
Canadian dollar price today
The table below shows the percentage change in the Canadian Dollar (CAD) against the major currencies listed today. The Canadian dollar was the strongest against the Japanese yen.
| American dollar | euro | GBP | JPY | Bastard – scoundrel | Australian dollar | New Zealand dollar | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| American dollar | -0.15% | -0.10% | 0.28% | -0.39% | -0.30% | -0.46% | 0.05% | |
| euro | 0.15% | 0.07% | 0.39% | -0.27% | -0.16% | -0.34% | 0.19% | |
| GBP | 0.10% | -0.07% | 0.34% | -0.33% | -0.23% | -0.43% | -0.03% | |
| JPY | -0.28% | -0.39% | -0.34% | -0.70% | -0.60% | -0.81% | -0.43% | |
| Bastard – scoundrel | 0.39% | 0.27% | 0.33% | 0.70% | 0.08% | -0.07% | 0.26% | |
| Australian dollar | 0.30% | 0.16% | 0.23% | 0.60% | -0.08% | -0.17% | 0.15% | |
| New Zealand dollar | 0.46% | 0.34% | 0.43% | 0.81% | 0.07% | 0.17% | 0.37% | |
| Swiss franc | -0.05% | -0.19% | 0.03% | 0.43% | -0.26% | -0.15% | -0.37% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select the Canadian dollar from the left column and move along the horizontal line to the US dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).
Technical Analysis: The Canadian dollar is broadly higher but remains mired in technical congestion
The Canadian dollar (CAD) was higher across the board on Friday, rising half a percent against the Japanese yen (JPY). The Canadian dollar also rose by more than a third of a percent against each of the two dollars Sterling pound (GBP) and US Dollar (USD) for today.
USD/CAD fell back to the 1.3630 area as the pair settles at the lower end of a near-term congestion pattern. Selling momentum continues to struggle to find territory near 1.3600, but bidders have been unable to pull prices back above 1.3750.
USD/CAD hourly chart
Daily chart of the USD/CAD pair
Frequently asked questions about the Canadian dollar
The main factors that move 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 moving into riskier assets (risk on) or looking for safe havens (risk off) – with risk being positive for the Canadian dollar. As its largest trading partner, the health of the US economy is also a major factor affecting the Canadian dollar.
The Bank of Canada (BoC) has significant influence on the Canadian dollar by setting the level of interest rates that banks can lend to each other. This affects the level of interest rates for everyone. The Bank of Canada’s main goal is to keep inflation at 1-3% by adjusting interest rates up or down. Relatively high interest rates tend to be positive for the Canadian dollar. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD negative and the latter positive.
The price of oil is a major factor affecting the value of the Canadian dollar. Petroleum is Canada’s largest export, so oil prices tend to have an immediate impact on the value of the Canadian dollar. In general, if the price of oil rises, the Canadian dollar also rises, as overall demand for the currency increases. The opposite is the case if the price of oil falls. Higher oil prices also tend to increase the likelihood of a positive trade balance, which also supports the Canadian dollar.
While inflation has always been thought to be a negative factor for a currency because it reduces the value of money, the opposite is the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to prompt central banks to raise interest rates, attracting more capital flows from global investors looking for a profitable place to keep their money. This increases the demand for the local currency, which in Canada’s case is the Canadian dollar.
Macroeconomic data releases measure the health of the economy and can have an impact on the Canadian dollar. Indicators such as GDP, manufacturing PMIs, services, employment and consumer surveys can all influence the direction of the Canadian dollar. A strong economy is good for the Canadian dollar. Not only does it attract more foreign investment, it may encourage the Bank of Canada to raise interest rates, leading to a stronger currency. If economic data is weak, the Canadian dollar will likely fall.
