The Canadian Dollar (CAD) showed signs of recovery against most major currencies on Thursday, but faced a setback against the US Dollar. A shift towards the US Dollar in the market pushed the USD/CAD pair higher towards the end of the trading week. This change in momentum was triggered by a shift in overall market sentiment.
In Canada, there was a decrease in Employment Insurance Beneficiaries Change figures for June, which helped strengthen the CAD for the day. However, a misinterpretation of US Purchasing Managers Index (PMI) figures caused the Greenback to rise across the board, limiting the gains of the Canadian Dollar on Thursday.
Key Market Updates
- Canadian Employment Insurance Beneficiaries Change increased by 1.3% MoM in June, compared to the previous month’s 1.9% rise in unemployment benefits claimants.
- US Manufacturing PMI figures dropped to 48.0 in August, below the expected 49.6.
- The US Services PMI component rose to 55.2 from 55.0, surpassing the forecasted decline to 48.0. However, the overall decline in reported employment figures in the PMI reports affected risk sentiment on Thursday.
- Market expectations for action from the Federal Reserve (Fed) in September remain high, with rate markets predicting a 100% chance of a rate cut on September 18.
- The likelihood of an initial double cut of 50 bps has decreased to less than 25% after the PMI misinterpretation on Thursday, down from almost 70% a week ago.
Canadian Dollar Price Outlook
The recent surge in US Dollar bids has interrupted the winning streak of the Canadian Dollar (CAD), resulting in a bullish candle in the USD/CAD pair after a week. While price action initially dipped below the 200-day Exponential Moving Average (EMA) at 1.3633, Thursday’s bullish movement has positioned the pair for a technical consolidation phase before potentially turning bullish again.
Analysis of Canadian Dollar Trends
The value of the Canadian Dollar is influenced by various factors, including interest rates set by the Bank of Canada, oil prices, economic health, inflation, trade balance, and market sentiment. Higher interest rates, rising oil prices, strong economic indicators, and positive market sentiment all contribute to a stronger Canadian Dollar. Conversely, lower interest rates, falling oil prices, weak economic data, and negative market sentiment can weaken the CAD. Understanding these factors can help individuals make informed decisions about their finances and investments.