Forex News
- USD/CAD regains positive traction as geopolitics and hawkish Fed bets continue to support the USD.
- Rising Crude Oil prices underpin the commodity-linked Loonie and cap further gains for spot prices.
- The technical setup favors bulls and backs the case for a move towards testing the recent swing high.
The USD/CAD pair attracts fresh buyers following the previous day's directionless price moves and sticks to modest intraday gains, around mid-1.3800s, through the first half of the European session on Wednesday.
Persistent geopolitical uncertainties, along with hawkish US Federal Reserve (Fed) expectations, benefit the US Dollar's (USD) reserve currency status and act as a tailwind for spot prices. Meanwhile, renewed hostilities in the Middle East push Crude Oil prices higher for the third straight day, underpinning the commodity-linked Loonie and capping gains for the USD/CAD pair.
From a technical perspective, spot prices maintain a constructive bullish bias following the recent breakout through the 1.3755 confluence – comprising the 50-day Simple Moving Average (SMA) and the 61.8% Fibonacci retracement of the April-May fall. Moreover, the Relative Strength Index (14) hovers near 65, suggesting firm but not yet overbought upside momentum.
Adding to this, the Moving Average Convergence Divergence (MACD) remains in positive territory, hinting that buyers still retain control despite nearby overhead levels. However, it will still be prudent to wait for a subsequent strength beyond the immediate resistance at the 78.6% Fibo. retracement at 1.3876, before placing fresh bullish bets around the USD/CAD pair.
Spot prices might then aim to test the recent swing high around 1.3965, which might act as a stronger cap. On the downside, initial support is seen at the 61.8% retracement at 1.3806, with a deeper demand band clustered around the 50% retracement at 1.3757 and the 50-day SMA at 1.3760. Further losses would expose the 38.2% level at 1.3708 and the 23.6% retracement at 1.3647.
(The technical analysis of this story was written with the help of an AI tool.)
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.
TD Securities strategists Prashant Newnaha and Alex Loo note that Australian Q1 Gross Domestic Product (GDP) matched the Reserve Bank of Australia’s (RBA) 0.3% q/q implied forecast, but highlight that household and government spending are weak while data centre investment props up activity. They stress that the economy is still growing above its speed limit and expect one final 25 bps RBA hike in August.
RBA path shaped by weak demand
"Q1 GDP landed bang in line with the Bank's implied 0.3% q/q forecast. However, a breakdown of the data reveals that outside of data center investment, household and government spending is weak."
"Of the 0.95% pts increase in private demand, 0.69% pts came from Private Investment - thanks to the data center build-out. The contribution from private investment to GDP was the largest since Q1'21."
"An important detail worthy of note is the drop in Government consumption was influenced by the end of the Government electricity rebate. We estimate this to have sliced 0.3% pts off Government consumption and mechanically, this would have boosted quarterly private consumption by the same magnitude. Excluding the electricity rebate, the private consumption contribution to GDP would have been flat!"
"Of more concern for the RBA is the breakdown - household spending is weak with economic activity essentially being held up by the data center build out. It doesn't help productivity is weak, -0.6% q/q in Q1."
"Looking ahead, economic conditions are less than ideal - S&P Global's Composite PMI for May points to downside risks for Q2 GDP growth but upside risks to the Bank's 1% q/q trimmed mean CPI forecast for Q2."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
According to a report from NHK released in the European trading session on Wednesday, Japan’s Prime Minister (PM) Sanae Takaichi is planning to travel to Europe from the latter half of next week to attend the G7 Summit in France.
Additional remarks
Will respond appropriately any time on Forex.
Reaffirmed with US Treasury Secretary Scott Bessent that we will closely coordinate based on our joint statement.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Danske Research Team notes that EUR/USD stayed broadly unchanged in a 1.1620–1.1650 range as short-term US and Euro area rates were steady. The analysts highlight stronger US JOLTS data and a robust labour market, which they say is no longer cooling. They add that this combination of strong macro data and robust earnings challenges bearish views on US assets.
Dollar steadies with robust labour data
"It was a relatively quiet day in FX and fixed income market yesterday, where euro area inflation rose in line with expectations and energy prices were steady. Short-term US and euro area interest rates did not move much and consequently EUR/USD was about unchanged in 1.1620-50 range."
"In the US, April JOLTS job openings surprised on the upside at 7.6 million (cons: 6.9), while hires eased to 5.1 million and layoffs were broadly unchanged at 1.7 million."
"Even though the figures are for April and not May (as in Friday's payrolls), they reinforce the picture of a robust labour market that is no longer cooling and may even be tightening again."
"In the euro area, HICP inflation rose to 3.2% y/y (cons: 3.2%, prior: 3.0%) as expected, but slightly above country indications. Core inflation increased more than expected to 2.5% y/y (cons: 2.4%, prior: 2.2%), driven by stronger services. Overall, this should limit how hawkishly the print is interpreted, although the services surprise still makes it a marginally hawkish outcome for the ECB, consistent with our call for a June hike."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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