**Canadian Dollar Slides Further as Bullish Momentum Wanes**
*By Reid Mager (Original Author – FXStreet)*
*Rewritten and expanded for clarity and context by [Your Name]*
The Canadian Dollar (CAD) continued its downward trend on Friday, erasing more of the prior week’s gains. The currency exhibited weakening bullish momentum against the US Dollar (USD), following several economic data releases from both Canada and the United States. Despite growing optimism around the Canadian economy earlier in the month, which briefly pushed the CAD higher, external pressures and robust US economic indicators contributed to the latest pullback.
This article explores the underlying causes of CAD’s recent slide, breaks down the key economic indicators impacting the currency, and outlines what traders and analysts are watching in the days ahead.
—
**Canadian Dollar Performance Overview**
The CAD started to reverse its short-lived bullish trend at the tail end of the week. Several factors influenced this dip, namely:
– Stronger-than-expected US economic data
– A pause in oil price gains, which often influence the Canadian Dollar
– Increased demand for the US Dollar due to risk-averse market sentiment
– Unimpressive Canadian economic figures impacting investor confidence
In Friday’s trading session, USD/CAD closed on a stronger note, climbing above 1.3630 by market close, up from the 1.3600 handle earlier in the week. The pairing reached as high as 1.3645 during intraday trading before slightly paring gains.
—
**Key Factors Behind CAD Weakness**
1. **Solid US Economic Data Boosting USD Strength**
One of the central drivers weakening the CAD this week was the release of strong US macroeconomic figures that supported the case for monetary policy tightening in the United States.
Notable economic indicators included:
– **US Core Personal Consumption Expenditures (PCE) Price Index**: The Fed’s preferred inflation metric rose as expected by 2.8% YoY in April, underscoring persistent inflationary pressures.
– **Personal Income & Spending**: Personal income in the US rose by 0.3% in April, while personal spending increased by 0.2%, indicating robust consumer activity.
– **Initial Jobless Claims**: Weekly jobless claims came in slightly below expectations, reflecting a still-tight labor market.
These data reinforced the narrative that the Federal Reserve may need to retain its restrictive monetary stance for a longer duration, thereby keeping the US Dollar attractive to investors.
2. **Oil Market Cooling Off**
As Canada remains one of the world’s top oil exporters, the CAD often shows a strong correlation with crude oil prices. However, this week saw crude oil prices stalling and eventually falling after reclaiming highs earlier in the month.
– **West Texas Intermediate (WTI)** crude declined back toward $76 per barrel on Friday after nearing $80 during the height of its latest rally.
– Diminishing geopolitical risk premiums and profit-taking by traders contributed to the oil market’s decline.
Lower oil prices tend to weigh on the Canadian economy by reducing export revenues and weakening trade balances, especially given Canada’s sizable energy sector. Consequently, CAD experienced selling pressure.
3. **Canadian Economic Data Lagging Behind**
Canada’s recent domestic data has not provided the support the CAD needs to sustain upward movement. Economists were especially underwhelmed by GDP figures and CPI data published earlier this month.
– **Canadian GDP**: Statistics Canada reported that real gross domestic product grew by only 0.4% in Q1 2024 on an annualized basis, a stark deceleration from Q4 2023’s 1.3% growth. Markets had expected an increase of closer to 0.8%.
– **Monthly GDP in March** showed a contraction of 0.2%, signaling sluggish business activity and pointing to stagnating growth momentum.
This backdrop added pressure on the Bank of Canada (BoC) to consider loosening monetary policy, which in turn pushed
Read more on USD/CAD trading.