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The Canadian Dollar has seen a slight increase in value due to rising oil prices and supply concerns. The Canadian Manufacturing PMI data release, which came out a few hours ago, was lower than expected and continues to show contraction, but has had a limited impact on the exchange rate.
The Bank of Canada hiked rates by 0.25%, raising its Policy Interest Rate to 4.75% at its last meeting after a five-month pause. The BoC gave increased consumer spending and higher-than-expected economic growth as the primary causes. Canadian GDP in May rose by 0.4% after the economy flatlined in April, increasing expectations of more BoC rate hikes.
Core Inflation fell to a lower-than-expected 3.7% versus the 3.9% forecast and 4.1% previous, reducing expectations the BoC will hike interest rates at its July 12 meeting. The S&P Global Manufacturing PMI survey for June came out at 48.8, which was below the 49.6 forecast and the 49 previously. Despite the lower result, USD/CAD was little affected.
USD/CAD is in a long-term uptrend on the weekly chart since the 2021 lows and has been consolidating in a broad sideways range since October 2022. The trend has a tendency to extend the probability, therefore, favoring longs over shorts.
The USD/CAD appears to have completed a measured move price pattern since the March 2023 highs. The measured move is a 3-wave zig-zag-like price pattern, much like an ABC correction in which the first and third waves are of a similar length. If so, it suggests the price has probably bottomed and is about to begin a cycle higher.
The daily chart further suggests the potential for a bullish recovery. The move up from the June 27 bottom has been accompanied by strong momentum, as shown by the high reading on the Relative Strength Index (RSI) momentum indicator.
A decisive break above the 1.3270 key lower high would provide evidence of a short-term reversal, possibly leading to a rise up to possibly as high as 1.3400 and the 50-day Simple Moving Average. This would also see the short-term trend rise in line with the longer-term uptrend.
In conclusion, the Canadian Dollar is driven by factors such as the Bank of Canada’s interest rate, oil prices, the health of its economy, inflation, and the Trade Balance. The Bank of Canada’s decisions and the impact of oil prices, inflation data, and economic data on the Canadian Dollar are crucial factors in determining its value.
