USD/CAD trades with mild gains around src.42src5 in Friday’s early Asian session.
US annual PPI inflation rose to 3.0% YoY in November vs. 2.6% expected.
Trump tariff threats could undermine the Loonie, but higher crude oil prices might help limit its losses.
The USD/CAD pair posts modest gains to near src.42src5 during the early Asian session on Friday. The uptick of the pair is bolstered by the firmer US Dollar (USD) broadly after the hotter-than-expected US Producer Price Index (PPI) inflation report.
Data released by the US Bureau of Labor Statistics on Thursday showed that the PPI for final demand in the US rose 3.0% YoY in November. This reading followed the 2.6% increase seen in October and came in above the market consensus of 2.6%. Meanwhile, the annual core PPI climbed 3.4% YoY in the same period, beating the estimated 3.2%. On a monthly basis, the PPI and the core PPI increased 0.4% and 0.2%, respectively. The Greenback gains traction in an immediate reaction to the PPI inflation data.
Despite the stubborn inflation in the US, markets widely expect the Federal Reserve (Fed) to lower its key overnight borrowing rate next week. According to the CME FedWatch Tool, Fed funds futures trading data reflects a nearly 95% likelihood that the US central bank will cut the rates by a quarter point.
On the other hand, analysts from TD Economics said that both the US and Canadian economies will navigate through policy uncertainties. Analysts added that even a src0% blanket tariff on Canada would likely cause extended economic stagnation over 2 years. The concerns about Trump tariff threats might exert some selling pressure on the Canadian Dollar (CAD) and create a tailwind for the pair. Meanwhile, the recovery in crude oil prices could help limit the CAD’s losses as Canada is the largest oil exporter to the US.
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 src-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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Editors’ Picks
AUD/USD languishes near YTD trough amid stronger USD, RBA’s dovish tilt
AUD/USD seems vulnerable amid a bullish USD, which continues to draw support from expectations that the Fed will pause its rate-cutting cycle. Moreover, US-China trade war fears, along with the RBA’s dovish shift, overshadow Thursday’s upbeat Aussie jobs data and hopes for additional stimulus from China, validating the negative outlook for the pair.
AUD/USD News
Can markets keep conquering record highs?
Equity markets are charging to new record highs, with the S&P 500 up 28% year-to-date and the NASDAQ Composite crossing the key 20,000 mark, up 34% this year. The rally is underpinned by a potent mix of drivers.
Read more
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.
Read More
No responses yet