The Canadian Dollar’s Decline Against the Greenback
- Investors flock to the safety of the US Dollar, causing the Canadian Dollar to slide to three-week lows.
- Markets open the week with a risk-off sentiment, impacting the CAD negatively.
- Canadian economic calendar remains quiet until Friday’s labor data release.
On Monday, the Canadian Dollar (CAD) weakened against the US Dollar, hitting long-term averages as investors sought refuge in the Greenback. This shift in market sentiment led to the Canadian Dollar’s decline to its lowest point in three weeks.
Notable economic data from Canada is scarce this week, with the focus turning to the upcoming labor data release on Friday. While Canadian Trade Balance figures are expected on Tuesday, their impact on the market is likely to be minimal.
Market Insights
- The prevailing risk-off sentiment weighs heavily on the CAD.
- Expectations for rate cuts have diminished, impacting market forecasts.
- The US labor market’s strength reduces the likelihood of significant rate cuts by the Fed.
- Speculation on no rate change in November gains momentum amid tepid Fed comments.
- Fed’s Kashkari notes a shift towards higher unemployment risks.
USD/CAD Price Forecast
The USD/CAD pair is currently trading at 1.36245, bouncing back from the 1.3500 level. Noteworthy is the breach above the 200-day Exponential Moving Average (EMA), indicating a potential shift in trend direction. This breakthrough suggests growing bullish momentum, with the 200-day EMA now serving as a support level.
Further reinforcing the bullish outlook is the proximity of the 50-day EMA below the current price. The recent crossover of both the 50-day and 200-day EMAs signals a potential rally in the near future, barring any significant pullbacks.
The MACD histogram supports a bullish trend, with the MACD line surpassing the signal line, indicating upward momentum. The steady rise of the histogram further strengthens the case for continued upward movement.
However, resistance lies around the 1.3650 level, historically a strong barrier. A sustained break above this level could pave the way for further gains, with the next key resistance zone at 1.3800.
Understanding the Canadian Dollar’s Performance
The Canadian Dollar’s value is influenced by various factors:
Interest Rates and Bank of Canada (BoC)
- BoC’s interest rate decisions impact the CAD’s strength.
- Higher interest rates are typically positive for the CAD.
Oil Prices
- Canada’s largest export, Oil prices directly affect the CAD.
- Rising Oil prices often lead to a stronger CAD.
Inflation and Trade Balance
- Inflation and the Trade Balance play a role in the CAD’s performance.
- Higher inflation can attract capital inflows, boosting the CAD.
Macroeconomic Data
- Economic indicators like GDP, PMIs, and employment data impact the CAD.
- A robust economy strengthens the CAD.