Canadian dollar loses momentum on stronger US counterpart

Strong US macroeconomic data has been supporting the US dollar, which has caused the Canadian currency (CAD) to lose ground. The Canadian dollar is under pressure as a result of the S&P Manufacturing PMI in Canada failing to sustain the loonie and the oil price stalling close to year-to-date highs. For the first time since October 2022, the US ISM Manufacturing index has reached levels over 50, indicating an unanticipated increase in the sector’s activity in March.

March saw minimal change in the Canadian S&P Manufacturing PMI, capping a year of decline in activity within the sector. The CAD, which is correlated with commodities, is under further pressure as crude oil prices have declined from their recent peaks. Strong US macroeconomic data on Monday supported the “soft landing” narrative and created gaps in the market’s forecast of three rate rises in 2024, which helped the USD/CAD pair regain bullish momentum.

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. 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 the largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.