Market Data 
- The Canadian Dollar was led by the nose through markets on Thursday.
- Canada remains absent from the economic calendar until Friday’s labor data.
- US jobless figures chill recent recession fears, but key inflation data looms ahead.
The Canadian Dollar (CAD) followed behind overall market flows on Thursday, pushed around by volumes in other, more interesting currencies as CAD traders await Friday’s Canadian labor numbers. A lack of any data on the Canadian side of the economic calendar left the CAD unsupported, trading into the flat side against the Greenback.
Canada brings its latest Net Change in Employment figures for the year ended in July on Friday, and median market forecasts are expecting a recovery from the previous period’s contraction. The Canadian Unemployment Rate is also expected to tick higher on Friday.
Daily digest market movers: Lazy day for CAD traders
- Canadian Dollar continues to see slim gains against the US Dollar, but momentum remains thin.
- US Initial Jobless Claims eased to 233K for the week ended August 2, below the forecast 240K and slipping back from the previous week’s 250K.
- Easing US unemployment figures are helping to ease risk appetite back into the picture.
- Friday’s Canadian Net Change in Employment for the YoY period in July is forecast to recover to 22.5K net new job additions, compared to the previous period’s -1.4K contraction.
- Despite the forecast upswing in new jobs, the Canadian Unemployment Rate is expected to tick upwards to 6.5% in July from the previous 6.4%.
Canadian Dollar price forecast: Easy CAD gains could be set to end as technical barriers approach
The Canadian Dollar is finding some room above the US Dollar on Thursday, but USD/CAD continues to trade within familiar levels with the long-term trend holding on the flat side. Price action is grinding into the 50-day Exponential Moving Average (EMA) at 1.3731, down -1.58% peak-to-trough from last week’s brief bullish spike above 1.3900.
Long-term traders will be looking for bids to continue easing towards the 200-day EMA at 1.3623, while the immediate chart scenario getting cooked up is a technical bounce from the divergence zone between the 50-day and 200-day EMAs.
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.
