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USD/CAD daily chart
12 Dec 2024
Canadian Dollar tumbles to fresh multi-year lows
- The Canadian Dollar shed four-tenths of a percent against the Greenback.
- Data from Canada remains limited following the BoC’s latest rate cut.
- Unsteady market concerns after US PPI inflation uptick keeps USD buoyed.
The Canadian Dollar (CAD) was unable to keep itself afloat on Thursday, ultimately declining another 0.4% against the safe haven Greenback. Markets hesitated after US Producer Price Index (PPI) inflation figures accelerated higher than expected, keeping risk appetite underbid and pushing the Loonie to fresh multi-year lows.
The Bank of Canada’s (BoC) latest rate cut earlier this week has sucked any bullish momentum out of CAD markets, leaving the Loonie to waffle into its lowest prices in 56 months. The Canadian Dollar is now a stone’s throw away from prices not seen since March of 2020.
Daily digest market movers: US PPI rises, Loonie falls
- The Canadian Dollar’s Thursday backslide has bolstered the USD/CAD chart, pushing the pair north of 1.4200.
- US PPI inflation accelerated to 0.4% MoM in November, over and above the forecast 0.2%.
- Core US PPI inflation rose to 3.4% YoY, thumping the forecast uptick to 3.2% and stretching even further from the previous period’s 3.1%.
- Rising US inflation pressures at the producer level sparked caution in investor sentiment.
- The BoC’s latest rate cut dragged Canada’s main reference rate down to 3.25% from 3.75% has left the Loonie with little structural support as interest rate differentials widen.
Canadian Dollar price forecast
The Canadian Dollar has given a fresh bearish push, bolstering the USD/CAD chart to fresh multi-year highs north of 1.4200. USD/CAD is now on pace to close higher for a fourth consecutive month, and the pair has risen a little over 6% bottom-to-top since September’s bottom bids near 1.3420.
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.