The Rise of USD/CAD: Analyzing the Market Trends
- USD/CAD gains ground to around 1.3795 in Friday’s early Asian session.
- The US Retail Sales rose by 0.4% MoM in September vs. 0.1% prior, stronger than expected.
- The rising expectation of a BoC rate cut could undermine the CAD, but higher crude oil prices might cap its downside.
As the USD/CAD pair trades with mild gains around 1.3795 during the early Asian session on Friday, it’s essential to understand the factors influencing this movement. Here’s a closer look at the current market trends:
US Economic Data Boosts USD
The US Retail Sales surprised to the upside in September, boosting the US Dollar (USD) broadly. Data released by the US Census Bureau on Thursday revealed that retail sales in the US rose by 0.4% MoM in September from a 0.1% rise in August. This figure came in stronger than the expectations of a 0.3% monthly gain. Meanwhile, Retail sales excluding autos came in at 0.5% MoM in September versus 0.2% prior, above the market consensus of 0.1%.
Signs of the economy’s resilience will trigger expectations for a smaller 25 basis points (bps) rate cut in November. The markets have priced in a nearly 90.3% chance of a 25 bps Fed rate reduction in November. Goldman Sachs analysts anticipate consecutive 25 bps rate cuts from November 2024 through June 2025 to a terminal rate range of 3.25-3.50%.
Impact on CAD
The rising bets that the Bank of Canada (BoC) would accelerate its easing cycle after September’s inflation data might weigh on the Canadian Dollar (CAD). Earlier this week, Statistics Canada showed the Canadian Consumer Price Index (CPI) rose 1.6% YoY in September, the slowest annual pace of inflation since February 2021.
However, the ongoing geopolitical tensions in the Middle East might lift the crude oil prices and support the commodity-linked Loonie as Canada is the largest oil exporter to the United States.
Canadian Dollar FAQs
Here are some key factors driving the Canadian Dollar (CAD) that investors should keep in mind:
Interest Rates
The level of interest rates set by the Bank of Canada (BoC) plays a crucial role in influencing the CAD value. Higher interest rates tend to be positive for the CAD as they attract more capital inflows from global investors seeking profitable investments.
Oil Prices
The price of Oil, Canada’s largest export, directly impacts the CAD value. Higher Oil prices generally lead to an increase in CAD value as demand for the currency rises.
Inflation
In modern times, higher inflation tends to lead to higher interest rates, attracting more capital inflows and increasing demand for the CAD.
Macroeconomic Indicators
Data releases such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence the direction of the CAD. A strong economy is positive for the Canadian Dollar.
Understanding these factors can provide valuable insights into the movements of the Canadian Dollar and help investors make informed decisions in the market.