Canadian Dollar dips to new lows with USD surging
- Canadian Dollar dives further with the USD rallying across the board.
- The CAD has depreciated about 1.23% this week, on its worst weekly performance in almost a year.
- USD/CAD is on a steady bullish trend, focusing on 1.3770 and 1.3845
The Canadian Dollar (CAD) is selling off for the third day in a row on Friday, on track to post its worst weekly performance in almost a year. The US Dollar is marching higher, fueled by higher US yields, as the market reassesses the timing and the size of the US Federal Reserve’s (Fed) easing cycle.
The Michigan Consumer Sentiment Index deteriorated beyond expectations, although the Consumer Inflation Expectations have ticked up. These data have failed to weigh on the US Dollar, which has received additional support from the European Central Bank’s (ECB) dovish monetary policy statement.
Somewhat earlier, on Friday, Boston Fed President Susan Collins anticipated a delay on the monetary easing kick-off, hinting at September, and pointed to just two cuts in 2024.
Daily digest market movers: USD/CAD remains firm with investors reassessing Fed easing expectations
- Canadian Dollar keeps heading south and is on track to a 1.25% sell-off this week, its worst weekly performance since May 2023.
- US Michigan Consumer Sentiment Index declined to 77.9 in April from 79.4 in March. The market had anticipated a 79.0 reading.
- University of Michigan Consumer 5-year Inflation Expectations have ticked up to 3% from 2.8% in April.
- US 10-year yields have pulled back from highs, although they remain above the key 4.5% level, their highest levels since last November.
- Investors have trimmed their Fed easing expectations to 60 basis points in 2024 from the 150 basis points foreseen in January. The first rate cut is expected only in September. This is acting as a tailwind for the US Dollar.
- Later today Fed’s Schmid, Bostic, and Daly, all in the hawkish side of the committee are meeting the press. They might provide further support for the USD.
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 weakest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 1.66% | 1.32% | 1.11% | 1.42% | 0.94% | 0.91% | 0.94% | |
| EUR | -1.69% | -0.34% | -0.58% | -0.23% | -0.74% | -0.76% | -0.73% | |
| GBP | -1.35% | 0.34% | -0.22% | 0.10% | -0.39% | -0.42% | -0.39% | |
| CAD | -1.12% | 0.56% | 0.22% | 0.33% | -0.16% | -0.19% | -0.17% | |
| AUD | -1.43% | 0.26% | -0.09% | -0.32% | -0.48% | -0.50% | -0.49% | |
| JPY | -0.94% | 0.73% | 0.41% | 0.18% | 0.50% | 0.00% | 0.01% | |
| NZD | -0.93% | 0.73% | 0.41% | 0.18% | 0.50% | 0.02% | 0.03% | |
| CHF | -0.96% | 0.71% | 0.37% | 0.16% | 0.49% | -0.01% | -0.04% |
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 keeps marching higher, with 1.3770 and 1.3845 in the bulls’ focus
The US Dollar is under a strong bullish momentum after confirming above the last two months’ channel top with no sight of a trend shift.
The reverse trendline has provided support, triggering another bull run to the 1.3770 resistance area, which has been tested on Friday. The USD/CAD pair is at overbought levels but not at extremes, with the measured target of the broken channel at the mid-November high of 1.3845. On the downside, supports are 1.3680-1.3660 and below here, at 1.3545.
USD/CAD Daily Chart
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.