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Unlocking the Secrets of the Canadian Dollar: How it Made a Comeback after a Wild NFP Friday

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  • The Canadian Dollar follows a broad-market risk bid to higher ground on Friday.
  • Economic data from Canada is thin on Friday, as well as all next week.
  • Crude Oil takes a little off the top, paring back recent losses and helping to prop up the CAD.

The Canadian Dollar (CAD) gained ground across the FX board on Friday, recovering from near-term declines. Still, gains are thin and the charts remain choppy as investors readjust their positions and expectations after the US Nonfarm Payrolls (NFP) for November surprised to the upside. The CAD finished Friday up a scant tenth of a percent against the US Dollar (USD), while the Loonie’s strongest performance was against the Kiwi (NZD), climbing about seven-tenths of a percent for the trading week’s last day.

Canada brought little significant economic data on Friday, and the same rings true for next week with next to nothing on the calendar docket for the CAD until next Friday’s appearance from Bank of Canada (BoC) Governor Tiff Macklem. BoC Governor Macklem is expected to answer audience questions after speaking at the Canadian Club of Toronto.

Daily Digest Market Movers: Canadian Dollar in the green for Friday despite rough ride from US NFP

  • The Canadian Dollar is up across the broader FX market on Friday, gaining ground against every other major currency, with the US Dollar taking a tight second place.
  • The US Dollar climbed ahead of Friday’s US Nonfarm Payrolls before falling back post-release.
  • US November NFP figure beats expectations on Friday, coming in at a hair under 200K, well above the forecast for 180K and clearing further ground above October’s 150K showing.
  • Despite the swing in risk sentiment after a better-than-expected NFP print, investors will be keeping a close eye on recent figures heading into 2024 and be on the lookout for revisions.
  • Of the last twelve consecutive NFP releases, all but four have been revised lower after the fact. Of the four, only two were revised higher; the two most recent prints have yet to fall under the red pen’s stroke.
  • The University of Michigan’s Consumer Sentiment Index also came in well above expectations, printing at 69.4, well above the forecasted 62.0 and climbing even further above November’s print of 61.3.
  • Next week brings US Consumer Price Index (CPI) inflation figures as well as the Federal Reserve’s (Fed) final Interest Rate Decision, and markets will be keen to see what updates are made to the Fed’s ‘dot plot’ of interest rate projections.
  • Crude Oil is seeing a moderate bounceback after declining through most of the week. West Texas Intermediate (WTI) Crude Oil has climbed back to $71.50 per barrel on Friday after declining nearly 8% from Monday’s opening bids, falling to $69.01 per barrel on Thursday.
  • A rebound in Crude Oil, even a thin one, is a welcome bump for the Canadian Dollar, which is still down eight-tenths of a percent against the US Dollar from Monday’s open.

Canadian Dollar price today

The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the weakest against the US Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.25% 0.34% -0.07% 0.22% 0.49% 0.63% 0.52%
EUR -0.25%   0.03% -0.32% -0.04% 0.23% 0.38% 0.28%
GBP -0.33% -0.09%   -0.41% -0.13% 0.15% 0.29% 0.19%
CAD 0.09% 0.32% 0.41%   0.30% 0.57% 0.71% 0.60%
AUD -0.22% 0.04% 0.12% -0.30%   0.28% 0.41% 0.32%
JPY -0.49% -0.22% -0.15% -0.57% -0.29%   0.16% 0.03%
NZD -0.63% -0.38% -0.29% -0.71% -0.42% -0.15%   -0.10%
CHF -0.51% -0.28% -0.19% -0.61% -0.33% -0.04% 0.10%  

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).

Technical Analysis: Canadian Dollar looking for gains on Monday, USD/CAD hampered by 1.3600

The USD/CAD saw some back-and-forth action on Friday, pointing to 1.3550 before rallying back towards the 1.3600 handle. Intraday action is getting squeezed into the midrange, with technical support coming from the 200-hour Simple Moving Average (SMA) near 1.3570.

Bullish momentum looks set to stall after a bounce from the 200-day SMA just above the 1.3500 handle, and daily candles have been closing in the middle for the back half of the trading week.

A bullish break will take the USD/CAD back toward the 50-day SMA near 1.3700, while a downside retest of the 200-day SMA will clear the way for another bearish run at September’s swing lows into 1.3400.

USD/CAD Hourly Chart

USD/CAD Daily Chart

Canadian Dollar FAQs

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.

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.

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.

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.

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.

Unlocking the Secrets of the Canadian Dollar: How it Made a Comeback after a Wild NFP Friday

The Canadian dollar, also known as the “loonie,” is the official currency of Canada and the seventh most traded currency in the world. It has a rich history and is greatly influenced by various economic and political factors. In recent years, the Canadian dollar has experienced significant volatility due to global events, but it has managed to make a strong comeback after a wild NFP (Non-Farm Payrolls) Friday. In this article, we will delve into the secrets of the Canadian dollar’s resurgence and how it has managed to maintain its strength.

Factors Affecting the Canadian Dollar

Before we dive into the details of the Canadian dollar’s comeback, it’s essential to understand the factors that affect its value. Like any other currency, the Canadian dollar is influenced by both domestic and international factors. These factors include:

1. Economic Indicators: The overall health and performance of Canada’s economy have a significant impact on the value of its currency. Economic indicators such as GDP, inflation rates, and employment data can all affect the strength of the Canadian dollar.

2. Trade Relationships: As Canada is a major exporter of commodities such as oil and lumber, its trade relationships with other countries, particularly the United States, can greatly affect the value of its currency.

3. Monetary Policy: The actions and decisions of the Bank of Canada (BOC) play a crucial role in the performance of the Canadian dollar. Changes in interest rates, inflation targets, and other monetary policies can greatly impact the currency’s value.

4. Global Events: Global events such as political turmoil, trade disputes, and natural disasters can also affect the Canadian dollar’s value. These events create uncertainty in the market, which can cause currency fluctuations.

Wild NFP Friday and its Impact on the Canadian Dollar

On March 5, 2021, the Canadian dollar experienced a sharp rally following a Wild NFP Friday, where the US released its Non-Farm Payrolls report, which showed an increase of 379,000 jobs in February. This news brought a wave of optimism for the US economy and sparked a sell-off in safe-haven currencies like the US dollar. As a result, the Canadian dollar saw a surge in demand, causing it to reach a three-year high against the US dollar.

The strong performance of the Canadian dollar can be attributed to several factors:

1. Strong Economic Recovery: Canada’s economy has shown remarkable resilience amid the ongoing pandemic. The government has implemented effective policies and stimulus measures to support businesses and individuals, leading to a faster-than-expected economic recovery.

2. Increase in Oil Prices: Canada is the fourth-largest producer and third-largest exporter of oil in the world. The increase in global oil prices has greatly benefited the Canadian economy and, in turn, the value of its currency.

3. Renewed Trade Optimism: As Canada’s largest trading partner, the US’s swift economic recovery and renewed trade optimism under President Joe Biden have also contributed to the Canadian dollar’s strength.

4. Increased Demand for Commodity Currencies: As global economies continue to recover amid the COVID-19 pandemic, there has been a rise in demand for commodity currencies like the Canadian dollar, which are closely tied to the prices of natural resources.

Maintaining the Canadian Dollar’s Strength

While the Canadian dollar has experienced a strong resurgence, it is essential to note that the currency’s value can be vulnerable to fluctuations. Here are a few factors that could potentially impact the Canadian dollar’s future performance:

1. COVID-19 Variants: The emergence of new variants of COVID-19 and possible surges in cases can lead to renewed lockdowns and restrictions, which could have a negative impact on the Canadian economy and its currency.

2. Trade Tensions: While trade relations between Canada and the US have improved, there are still ongoing trade disputes between these two countries. Any escalation of these tensions could have a negative impact on the Canadian dollar.

3. Monetary Policy Changes: As the global economy starts to recover, central banks worldwide may start to increase interest rates, which could cause a shift in the demand for currencies like the Canadian dollar.

4. Oil Market Volatility: The Canadian dollar is highly correlated to oil prices, and any significant fluctuations in the oil market could also affect the currency’s value.

Practical Tips for Dealing with the Canadian Dollar

If you are an investor or a business owner dealing with the Canadian dollar, here are a few practical tips to keep in mind:

1. Stay informed about economic and political events in Canada and globally, as they can significantly impact the Canadian dollar’s value.

2. Monitor oil prices, as they are a key driver of the Canadian dollar’s performance.

3. Diversify your portfolio and hedge against fluctuations in the Canadian dollar by investing in other currencies or assets.

4. Partner with a foreign exchange provider who can help you navigate the volatile currency market and provide you with competitive exchange rates.

Conclusion

The Canadian dollar’s strong comeback after a wild NFP Friday is a testament to Canada’s economic resilience and strength. However, it’s crucial to keep an eye on potential factors that could impact the currency’s future performance. By staying informed and working with the right partners, businesses and investors can effectively manage the risks associated with dealing with the Canadian dollar.

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