Canadian Dollar gives away gains as market sentiment sours
- Canadian Dollar gives away gains with investors increasingly cautious ahead of US CPI release.
- From a wider perspective, CAD continues searching for direction within previous levels.
- US Inflation and the BoC monetary policy decision, due on Wednesday, are likely to set the USD/CAD’s near-term direction.
The Canadian Dollar (CAD) is trading lower on Tuesday, giving back all the ground taken on Monday. A somewhat more sour market sentiment is boosting the US Dollar across the board, with equities dipping into negative territory and investors focusing on Wednesday’s US Consumer Prices Index (CPI) data.
US inflation is expected to show mixed readings with headline inflation ticking up on the back of higher energy prices. The core CPI is expected to have slowed down, yet at levels well above the Fed’s 2% target for price stability. Investors will analyze these figures with particular attention and, in that sense, an upside surprise might trigger a risk-averse reaction, sending the Loonie to fresh lows.
Shortly afterward, the Bank of Canada (BoC) will release its monetary policy decision. No changes are expected on the benchmark rate, although the soft inflation and employment levels seen last week might prompt the bank to hint toward a rate cut, probably in June. This might add negative pressure to the CAD.
Daily digest market movers: USD/CAD keeps trading back and forth, awaiting US CPI data
- Canadian Dollar pares gains with risk appetite fading as investors prepare for Wednesday’s US CPI release.
- US headline inflation is expected to have increased by 0.3% and 3.4% from a 0.4% monthly increment and a 3.2% annual reading in February.
- Core CPI is seen easing to 0.3% in March, from 0.4% in February, with the yearly rate cooling from 3.8% to 3.7%.
- Also on Wednesday, the BoC is expected to leave its benchmark index unchanged at 5%. The main interest will be on any hints toward the timing of the first rate cut.
- Later on Wednesday, Fed Bowman is expected to meet the press. She is a notorious hawk, and last Friday she warned about the likelihood of another rate hike.
- The release of the minutes of the last Fed meeting will close an eventful calendar on Wednesday. In the context of a recent CPI release, Fed policymakers’ comments might have an additional impact on USD crosses.
Canadian Dollar price this week
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies this week. Canadian Dollar was the strongest against the .
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.26% | -0.41% | -0.16% | -0.83% | 0.00% | -0.90% | -0.02% | |
| EUR | 0.26% | -0.14% | 0.10% | -0.56% | 0.26% | -0.63% | 0.24% | |
| GBP | 0.40% | 0.15% | 0.24% | -0.42% | 0.41% | -0.49% | 0.39% | |
| CAD | 0.17% | -0.09% | -0.23% | -0.65% | 0.18% | -0.72% | 0.16% | |
| AUD | 0.83% | 0.57% | 0.42% | 0.66% | 0.83% | -0.06% | 0.80% | |
| JPY | 0.01% | -0.28% | -0.42% | -0.15% | -0.83% | -0.90% | -0.01% | |
| NZD | 0.90% | 0.63% | 0.49% | 0.73% | 0.07% | 0.90% | 0.86% | |
| CHF | 0.02% | -0.24% | -0.39% | -0.14% | -0.81% | 0.03% | -0.88% |
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’s broader bias remains positive, with a key resistance area at 1.3645
The US Dollar has bounced up from the support area at 1.3555. This level is coincident with the US Dollar Index (DXY) support area at 193.90. Investors are cutting back their exposure to risky assets as we head into the US CPI release, returning to the safe-haven US Dollar.
The broader trend remains positive, and the pair has scope for another test at the 1.3645 trendline resistance. Above here, the next target would be the 1.3680-1.3700 area. Support levels remain at 1.3555, the confluence of the 4-hour 50 and 100 SMAs, followed by 1.3480 and 1.3415.
USD/CAD 4-Hour 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.