Canadian Dollar remains vulnerable against an unstoppable USD
- Canadian Dollar extends losses with US Dollar strengthening across the board.
- Mixed US PPI figures fail to offset risk-averse reaction triggered by Wednesday’s CPI figures completely.
- USD/CAD keeps marching higher, 1.3740 and 1.3770 on bulls’ radar.
The Canadian Dollar (CAD) is selling off for the second consecutive day on Thursday. The Loonie has depreciated more than 1% over the last two trading days with the US Dollar appreciating across the board as investors dial down hopes of Federal Reserve (Fed) easing for 2024.
The US Producer Prices Index (PPI) has shown mixed data, with the headline figures accelerating below expectations but still offering hotter-than-expected core inflation. These figures have provided some relief but do not offset the risk-averse sentiment triggered by the high Consumer Prices Index (CPI) figures released on Wednesday.
Richmond Fed President Thomas Barkin has wondered if there is a shift in inflation trends and asked for some more time to start cutting rates. NY Fed CEO John Williams has shown a more dovish profile, stating that there will be a need to cut rates but that a hike is not on the cards at the moment. Later today the Fed’s Collins and Bostic will meet the press.
Daily digest market movers: USD/CAD keeps marching higher as Fed cut hopes wane
- Canadian Dollar drops to fresh five-month lows on Thursday, on track to its worst weekly performance since November.
- US PPI slowed down to 0.2% in March, from 0.6% in February, although the yearly rate bounced up to 2.1% from 1.6% in the previous month. Core PPI accelerated to a 2.4% yearly rate from 2.1% in February, above expectations of a 2.3% reading.
- On Wednesday, US CPI inflation accelerated at 0.4% pace in March and 3.5% YoY, beating expectations of 0.3% and 3.2%, respectively. Risk aversion sent US yields and the US Dollar surging.
- Treasury yields for the US 10-year note have surpassed the key 4.5% level for the first time this year. The 2-year yield has rallied about 40 basis points in three days to test the 5% level.
- On Wednesday, BoC left interest rates unchanged at 5%, but Governor Macklem revealed that committee discussed possibility of cutting rates, adding negative pressure to CAD.
- Futures market bets for Fed rate cuts in June have dropped to 20% from levels above 50% before US CPI report, according to CME Group’s FedWatch Tool.
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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 Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.22% | 0.03% | 0.12% | -0.25% | 0.18% | -0.13% | -0.26% | |
| EUR | -0.22% | -0.21% | -0.09% | -0.47% | -0.05% | -0.35% | -0.48% | |
| GBP | -0.03% | 0.19% | 0.09% | -0.28% | 0.13% | -0.17% | -0.30% | |
| CAD | -0.12% | 0.10% | -0.08% | -0.36% | 0.07% | -0.22% | -0.40% | |
| AUD | 0.22% | 0.44% | 0.26% | 0.34% | 0.40% | 0.11% | -0.02% | |
| JPY | -0.17% | 0.06% | -0.15% | -0.07% | -0.42% | -0.31% | -0.43% | |
| NZD | 0.13% | 0.35% | 0.16% | 0.24% | -0.12% | 0.29% | -0.14% | |
| CHF | 0.26% | 0.47% | 0.31% | 0.39% | 0.02% | 0.44% | 0.17% |
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: USD/CAD breaks above channel top, next resistance at 1.3740
The US Dollar has broken above the last two months’ channel top as the strong US inflation data dampened hopes of a rate cut in June. Bulls have taken control, extending their rally beyond 1.3700 with no sign of a bearish reversal in sight.
The reverse trendline has provided support, confirming the bullish trend. The next upside targets are 1.3740 and 1.3770. The measured target of the broken channel is the mid-November high at 1.3845. Supports are the mentioned channel top, 1.3660 and 1.3545.
USD/CAD Daily Chart
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.