The Canadian Dollar (CAD) showed slight improvement against the US Dollar (USD) on Tuesday, while performing poorly against other major currencies. This shift in market sentiment comes after the US Producer Price Index (PPI) inflation decreased in July, leading to speculation of a potential double rate cut by the Federal Reserve (Fed) in September.

With Canada absent from this week’s economic calendar, all eyes are on the upcoming US Consumer Price Index (CPI) inflation data set to be released on Wednesday. The expectation is for US CPI inflation to continue its downward trend towards the Fed’s 2% annual inflation target.

Daily Market Update: Canadian Dollar Falls as Greenback Weakens

  • The CAD weakened against the USD on Tuesday but managed to gain 0.25%.
  • US PPI inflation dropped to 2.2% YoY in July, below the expected 2.3% and lower than the previous period’s revised 2.7%.
  • Decreasing US inflation figures negatively impacted the USD, causing it to decline across the board.
  • Investors are eagerly awaiting Wednesday’s US CPI inflation data, which is anticipated to align with the overall trend of declining inflation pressures.
  • Rate markets are now predicting a higher likelihood of a 50 basis points double rate cut by the Fed in September, although the probability remains below last week’s peak of 70%.

Canadian Dollar Outlook: USD/CAD Falls Below 1.3750

On Tuesday, the USD/CAD pair dropped towards 1.3700, slipping below the 50-day Exponential Moving Average (EMA) at 1.3730. The CAD reached three-week highs against the USD as pressure mounts on the Greenback, dragging the pair below the key technical level of 1.3750.

Long-term technical analysis still favors long positions as the pair trades above the 200-day EMA at 1.3630. However, upward momentum is limited after failing to surpass the 1.3950 peak last week.

USD/CAD Daily Chart

Canadian Dollar FAQs

The Canadian Dollar (CAD) is influenced by factors such as interest rates set by the Bank of Canada, Oil prices, economic health, inflation, and trade balance. Market sentiment and the US economy’s performance also play a significant role in shaping the CAD’s value.

The Bank of Canada controls interest rates, impacting the CAD’s value. Higher interest rates are positive for the CAD, while quantitative easing and tightening affect credit conditions.

Oil prices directly impact the CAD due to Canada’s reliance on petroleum exports. Rising Oil prices typically strengthen the CAD, while falling prices have the opposite effect.

Inflation, economic data releases, and overall economic health influence the CAD’s performance. Strong economic indicators tend to boost the CAD, while weak data can lead to depreciation.

Understanding these factors can help investors make informed decisions about trading the Canadian Dollar and navigating the forex market effectively.

 

Analysis:

The Canadian Dollar showed resilience against the US Dollar as US inflation data painted a bleak picture for the Greenback. With expectations of a double rate cut by the Fed, the USD weakened, allowing the CAD to gain ground. Investors are closely monitoring upcoming US CPI inflation figures for further market direction. Understanding the key factors influencing the CAD’s performance can help individuals make informed decisions about their investments and financial strategies.

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