Title: Canadian Dollar Edges Higher Against US Dollar Amid Mixed Market Sentiment
Original reporting by FXStreet
The Canadian dollar (CAD) has shown modest gains against the US dollar (USD) recently, fueled by a combination of domestic economic resilience, commodity price fluctuations, technical indicators, and market sentiment around U.S. Federal Reserve policy. According to a recent report by Shaun Osborne, Chief FX Strategist at Scotiabank, the loonie moved cautiously higher, reflecting broader macroeconomic conditions and external drivers in both the U.S. and Canada.
This extended analysis dives deeper into the trends, technical outlook, and macroeconomic backdrop influencing the CAD/USD pair. In this article, we also consolidate insights from various financial experts, economic data, and forecasts shaping investor sentiment toward Canada’s currency.
Overview of Current Market Conditions
– The Canadian dollar advanced slightly versus the U.S. dollar, hovering around the 1.3560–1.3570 region in recent trading.
– The pair has been showing short-term resistance around 1.3600 as risk appetite picks up globally.
– Increased oil prices lent support to CAD, given Canada’s position as a major crude exporter.
– The U.S. dollar index (DXY), which tracks the greenback against a basket of six major currencies, has fluctuated modestly as Fed officials maintain a cautious stance on rate hikes.
According to Scotiabank’s Osborne, the USD/CAD pair has recently returned below the mid-1.36s, but strong support may prevent a deeper correction unless broader risk sentiment pushes further in favor of commodity-linked currencies.
Technical Outlook
Shaun Osborne notes that technical signals for USD/CAD are leaning slightly bearish in the short term:
– The pair briefly tested the psychological threshold of 1.3600, but has failed to break out higher.
– The support zone is seen around 1.3535, and further downside may encourage momentum-driven selling.
– Daily trend indicators are shifting neutral, hinting at consolidation in the near term within a narrow band.
– Hourly trading patterns suggest a minor downward bias, with the potential to test the 1.3535–1.3545 range again if risk-on sentiment persists.
On a broader note, the CAD continues to benefit from favorable risk sentiment and commodity strength.
Commodity Price Influence
Being a commodity-linked currency, the CAD remains closely tied to crude oil prices, which have helped limit downside risks amid volatile USD flows.
– West Texas Intermediate (WTI) crude prices have seen a rebound, maintaining pressure on USD/CAD.
– Oil demand expectations have improved with recent economic data from China and the U.S., supporting commodity exports from Canada.
– Analysts believe oil prices hovering above $85/barrel highlight the ongoing strength of energy markets, which contributes positively to the Canadian trade balance and, by extension, the CAD.
Economic Data Driving Sentiment
Several key economic indicators from both Canada and the United States are currently shaping CAD/USD movements.
United States:
– The Federal Reserve held interest rates at their previous levels amid mixed inflation data.
– U.S. CPI data indicated sticky inflation, which could keep the Fed on guard for longer.
– Labor markets have remained robust, although some recent jobless claims data hint at softening.
– SOFR rate expectations suggest rate cuts are still anticipated in early to mid-2024 should inflation moderate.
Canada:
– The Bank of Canada (BoC) has paused its rate hike cycle but remains data-dependent.
– Core inflation remains above the BoC’s target of 2 percent, encouraging speculation the central bank may resume hikes if required.
– Unemployment ticked up slightly to 5.5 percent, but remains historically low.
– Retail sales and manufacturing output showed resilience, suggesting the Canadian economy remains in a good position relative to global peers.
Analysts at TD Securities and National Bank Financial have expressed that the BoC may need one more rate hike in 2024, likely toward the summer
Read more on USD/CAD trading.