Canadian Dollar roils after US PMI data beat overshadows dovish BoC
- Canadian Dollar extended declines after US PMIs cast a long shadow.
- Bank of Canada remains dovish on inflation outlook.
- Canadian money markets are trimming their BoC rate cut bets.
The Canadian Dollar (CAD) fell on Wednesday, pushed lower across the FX market as the Loonie struggles under the weight of a dovish Bank of Canada (BoC) that is still extremely cautious on rate cuts with Canadian inflation not expected to return to the BoC’s 2% target until 2025.
Canada saw money markets trim bets of a BoC rate cut in April down to 40%, tumbling from 65% before the BoC’s monetary policy statement on Wednesday morning. The Bank of Canada followed up their latest policy statement with a press conference, where BoC Governor Tiff Macklem highlighted the BOC’s determination to see inflation come down before adding rate cut discussions to the table.
Daily digest market movers: Canadian Dollar grinds lower on soft BoC, US PMI beat
- Bank of Canada reiterates that monetary policy structure is currently working, but there is still a long way to go on inflation.
- BoC Governor Tiff Macklem states that internal discussions should remain squarely focused on how long to keep rates at 5%, rather than focusing on delivering rate cuts as soon as possible.
- Canadian money markets are pulling away from BoC rate cut bets, odds of an April rate cut down to 40% from 65% prior to BoC statement.
- BoC hopes that Canadian growth will slowly pick up its pace through the second half of 2024 with inflation falling below 2% in early 2025.
- BoC continues to focus on rising rents and shelter costs alongside high wage growth as problematic areas.
- Tiff Macklem comments on policy outlook
- Wednesday’s US Purchasing Managers’ Index (PMI) drove investors into safe havens after US figures cleanly beat the market, putting downside pressure on broad-market rate cut hopes.
- The US’ S&P Global Manufacturing PMI hit a 15-month high of 50.3 versus the expected hold at 47.9 in January as the US economy continues to outpace forecasts put forth by markets hoping for an economic backslide to spark a rate cut cycle.
- The US’ S&P Global Services PMI component also hit a seven-month high of 52.9 versus the forecasted decline from 51.4 to 51.0.
Canadian Dollar price today
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.27% | -0.27% | 0.48% | 0.06% | -0.49% | -0.21% | -0.79% | |
| EUR | 0.27% | -0.01% | 0.74% | 0.29% | -0.21% | 0.04% | -0.52% | |
| GBP | 0.27% | 0.00% | 0.74% | 0.30% | -0.21% | 0.05% | -0.53% | |
| CAD | -0.49% | -0.71% | -0.74% | -0.44% | -0.96% | -0.69% | -1.27% | |
| AUD | -0.04% | -0.30% | -0.30% | 0.44% | -0.51% | -0.26% | -0.83% | |
| JPY | 0.48% | 0.21% | 0.22% | 0.94% | 0.54% | 0.25% | -0.31% | |
| NZD | 0.23% | -0.06% | -0.06% | 0.69% | 0.27% | -0.25% | -0.58% | |
| CHF | 0.79% | 0.52% | 0.52% | 1.27% | 0.85% | 0.31% | 0.59% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
The Canadian Dollar (CAD) is on pace to be the poorest performer of the majors on Wednesday. The CAD is in the red across the board, down close to a full percent against the Japanese Yen (JPY) and 1.25% against the Swiss Franc (CHF). The Loonie saw its most moderate losses against the US Dollar (USD) and the Australian Dollar (AUD), but still shed around half of a percent against the Greenback and the Aussie for the day.
The USD/CAD rallied back above the 1.34500 handle after an early plunge to 1.3430 on Wednesday. The pair is seeing some technical friction from the 200-hour Simple Moving Average (SMA), but near-term momentum remains tilted toward the bullish side with the early week’s swing low pricing in a technical floor at 1.3420.
Continued bullish momentum will send the USD/CAD through a technical congestion zone as the 50-day and 200-day SMAs consolidate near the 1.3500 handle. The pair is on pace to close in the green for a fourth straight week as the USD/CAD grinds back up from December’s bottom bids near 1.3200.
USD/CAD Hourly Chart
USD/CAD Daily Chart
Canadian Dollar FAQs
What key factors drive the Canadian Dollar?
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.
How do the decisions of the Bank of Canada impact 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.
How does the price of Oil impact the Canadian Dollar?
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.
How does inflation data impact the value of the Canadian Dollar?
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.
How does economic data influence the value of 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.