The USD/CAD currency pair rose about 0.14% on Friday after a stellar U.S. jobs report that nearly tripled economists’ forecasts, according to the U.S. Bureau of Labor Statistics (BLS). At the time of writing, the pair is trading at 1.3936, trading with little liquidity as most global markets remain closed for Good Friday.
Good wage data revives Fed suspends bets as BoC tightens
Nonfarm payrolls rose by 178,000 in March, topping forecasts of 60,000, compared with February’s revised down figure of -133,000. The unemployment rate fell two notches to 4.3%, below the Federal Reserve’s long-term target of 4.5%, meaning inflation has returned to the central bank’s priority.
The US Dollar Index (DXY), which measures the dollar’s value against six currencies, rose a minuscule 0.06% to return above the 100.00 level amid growing speculation that the Fed will not cut interest rates, as indicated by money markets.
Chicago Board of Trade (CBOT) data revealed that investors softened their dovish assumptions and expected the Fed to keep interest rates on hold throughout the year.
Across the northern border on March 18, the Bank of Canada kept interest rates steady, with Governor Tiff Macklem commenting that policymakers will analyze the direct impact of the Iran conflict on inflation, but will take action if price pressures persist.
The swaps market has priced in two BoC rate increases for the second half of the year.
USD/CAD Price Analysis: Technical Outlook
The immediate reaction to NFP has pushed USD/CAD higher above the April 2 high of 1.3933, which could open the door to a challenge at 1.3950, with the next area of ​​concern at 1.4000. On the other hand, with low volumes on Friday, the low will be 1.3900.
Canadian Dollar FAQs
The key factors shaping the Canadian dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of crude oil, which is Canada’s largest export, the condition of its economy, inflation and the trade balance, i.e. the difference between the value of Canadian exports and imports. Other factors include market sentiment – whether investors are taking on riskier assets (with risk) or looking for sheltered havens (with risk), with risk being positive relative to CAD. As the United States’ largest trading partner, the health of the U.S. economy is also a key factor influencing the exchange rate of the Canadian dollar.
The Bank of Canada (BoC) has significant influence over the Canadian dollar by setting the interest rates that banks can lend to each other. This affects the level of interest rates for everyone. The main goal of the BoC is to keep inflation at 1-3% by raising or lowering interest rates. Relatively higher interest rates tend to benefit CAD. The Bank of Canada may also apply quantitative easing and tightening to influence lending terms, with the former being CAD negative and the latter CAD positive.
The price of oil is a key factor influencing the value of the Canadian dollar. Oil is Canada’s largest export, so the price of oil usually has a direct impact on the value of CAD. Generally speaking, if the price of oil increases, CAD also increases because aggregate demand for the currency increases. The opposite is true when the price of oil falls. Higher oil prices also tend to result in a greater likelihood of a positive trade balance, which also supports CAD.
While inflation has always traditionally been considered a negative factor for currency because it reduces the value of money, in up-to-date times the opposite has been true with the relaxation of cross-border capital controls. Higher inflation prompts central banks to raise interest rates, which attracts more capital inflows from global investors looking for 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 are used to assess the condition of the economy and may affect the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can influence the direction of CAD. A mighty economy is good for the Canadian dollar. Not only will it attract more foreign investment, but it could encourage the Bank of Canada to raise interest rates, leading to a stronger currency. However, if economic data is frail, CAD will likely decline.
