The Canadian Dollar encounters relatively hostile waters. True, recently it’s gotten crushed against the US Dollar. It mostly traded above 1.50. As of Friday, the currency was struggling against negative sentiment. Still, it remains near 18-week lows against its American cousin. Weak Canadian Dollar on all major moving averages. This drop speaks to the difficult battle it must continue to fight even as Greenback flows overall continue to decline.
Despite these struggles, the Canadian economy exhibited some positive signs, notably with a rebound in Gross Domestic Product (GDP) growth during July. This announcement provided a cause for some short-term strength for the Canadian Dollar. That’s not to say it isn’t under big-time pressure from higher interest rates, soaring oil prices, and rapidly evolving trade dynamics.
Economic Indicators and Their Impact
After some slowdown across the Canadian economy, GDP growth rebounded somewhat, with a 0.2% month-over-month growth in July. This figure exceeded Wall Street expectations that called for just a 0.1% increase after June’s -0.2% decrease. The surprising expansion sent a ray of light for the CAD. Despite this success, it is vulnerable as it continues to fight external pressures.
The Canadian Dollar is highly dependent on the three following factors. These are the Bank of Canada’s policy interest rates, the price of oil—Canada’s biggest export—and economic growth. With this type of market environment we’re seeing today, any expectation of additional cuts by the Federal Reserve would likely be bearish for the US Dollar. This could provide a window of opportunity for the Canadian Dollar to strengthen.
This promise is shadowed by persistently high inflation worries. Indeed, the recent US Personal Consumption Expenditures (PCE) inflation came in right on the mark. Nonetheless, it remained well above the Fed’s annual inflation target of 2%. All of this makes the future course of monetary policy highly uncertain and will help determine the path of both currencies.
Technical Analysis and Market Sentiment
The CAD has recently broken out above its 50-day Exponential Moving Average. Third, it has decisively broken above the 200-day EMA. This bullish move further gives a possibly mighty shift in momentum in analogue bullish sentiment among traders, fuelling higher demand for the money. At the moment, the duo is testing the 1.3950 area, which has served as a short-term ceiling in recent months.
If the Canadian Dollar closes decisively above this area, it will exceed the psychological resistance level around 1.4000. Assuming strong bullish momentum, perhaps even 1.4100 as potential resistance. On the flip side, support is developing near 1.3880. This area is in perfect accordance with the 200-day EMA and may serve as a cushion to protect against additional drops.
Market participants are watching these levels like a hawk as any sharp move can lead to big changes in trading strategy. Technical indicators as well as upcoming fundamental economic data will continue to be an important part of determining the Canadian Dollar’s fate. Look for their impact to be felt in the coming weeks.
Global Influences on the Canadian Dollar
In practice, the Canadian Dollar tends to very closely follow the health and outlook of the US economy. This link is particularly important as the United States is Canada’s top trading partner. Macroeconomic developments in the US generally have very direct and near-term impacts on Canada’s currency. It’s widely expected that the Fed will announce their second straight 25bps rate cut at their meeting in October. According to market expectations, there is a close to 90% probability of a 25 basis point cut being delivered on October 25th.
This expected loosening would likely support the Canadian Dollar if it provides some relief to the current strain on global risk sentiment. Any changes in US economic performance or Fed policy could change this dynamic very quickly. Traders will have to be on their toes. They should socialize expectations that they will monitor domestic indicators and international developments that may threaten cross-border trade and currency valuation.