Canadian Dollar gains ground as US Dollar recedes
- The Canadian Dollar sprang higher on Wednesday, climbing 0.45%.
- Bullish Loonie flows are entirely owing to newfound Greenback weakness.
- Fed rate cut bets remain the focal point, CAD GDP data looms ahead.
The Canadian Dollar (CAD) found a fresh round of bidding strength on Wednesday, lurching into its highest levels against the US Dollar (USD) in a week. Loonie gains are unlikely to extend into meaningful change for the CAD, as Greenback losses are strictly on the back of renewed market confidence in impending Federal Reserve (Fed) interest rate cuts in December rather than any intrinsic strength behind the Canadian Dollar.
Canadian Gross Domestic Product (GDP) growth figures are due later this week on Friday. CAD traders will be looking for a rebound in quarterly GDP numbers as the Canadian economy grapples with ongoing fallout from the Trump administration’s lopsided trade war strategy of shooting itself in the foot with arbitrary tariffs. However, an encroaching US Thanksgiving holiday will see market volumes constrained heading into the end of the week.
Daily digest market movers: Canadian Dollar finds one last burst of strength before holiday closures
- The Canadian Dollar gained ground against the battered US Dollar, pushing USD/CAD back below the 1.3100 handle after a brief bout of consolidation.
- USD/CAD remains on the bullish side of key averages, implying Loonie momentum will be short-lived.
- US markets will be closing early on both Thursday and Friday as Americans take time off for Thanksgiving.
- Canadian GDP figures due on Friday are expected to show a meager rebound in the third quarter from a sharp contraction in Q2.
- Federal Reserve (Fed) rate cut expectations remain the key driver in markets, forcing the US Dollar lower as traders expect a third straight Fed rate cut on December 10.
Canadian Dollar price forecast
USD/CAD is facing newfound pressure after losing a grip on the 1.4100 handle. The pair holds above the rising 50-day Exponential Moving Average (EMA) at 1.3992 and the 200-day EMA at 1.3920, keeping the broader bias tilted higher. The 50-day EMA stands above the 200-day EMA and both slope upward, confirming trend support. The Relative Strength Index (RSI) at 50.74 is neutral; a sustained push through 60.0 could reinforce upside momentum.
The slow Stochastic oscillator (14,5,5) hovers near 70.0 and is in the process of pivoting higher, signaling improving bullish momentum without overbought strain. As long as pullbacks stay contained above the shorter average, the uptrend would remain intact, while a break beneath it would risk a deeper retracement toward the longer one. Overall, the rising moving averages keep the advantage with buyers, with momentum metrics not yet capping the advance.
USD/CAD daily chart
Canadian Dollar FAQs
The key factors driving 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 taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.