Canadian Dollar flatlines as traders await Jackson Hole Symposium
- USD/CAD holds steady near 1.3850 in Friday’s early European session.
- Fed Chairman Warsh will deliver the keynote speech on Friday at the Jackson Hole symposium.
- Renewed escalation in trade tensions between the US and Canada could weigh on the Loonie.
The USD/CAD pair trades on a flat note around 1.3850 during the early European trading hours on Friday. Traders prefer to wait on the sidelines ahead of Federal Reserve (Fed) Chair Kevin Warsh's speech at the Jackson Hole symposium later on Friday for clues on his policy outlook.
The core Personal Consumption Expenditures (PCE) Price Index inflation data released on Wednesday came in line with market expectations, prompting traders to increase their bets on a September rate increase. According to the CME FedWatch Tool, the chance of a Fed rate hike in September rose to 40% from 36% before the data release.
Jackson Hole symposium could provide more clarity on his outlook for the US economy, interest rate outlook, and how the US central bank will bring inflation back to the Fed’s 2% target. Any hawkish comments from Fed officials could help limit the Greenback’s losses in the near term.
“In short, we expect Warsh to signal that he is prepared to raise rates again if inflation does not continue to moderate,” said Mark Cabana, head of U.S. rates strategy at Bank of America. “By contrast, if he uses the speech to focus solely on broader structural themes such as productivity or demographics, we worry markets could interpret the message as dovish.”
The escalating trade dispute between the US and Canada could weigh on the Canadian Dollar (CAD) and create a tailwind for the pair. According to the Department of Finance, Canada added 50% tariffs on US-made copper wire and wood charcoal to its retaliation list as a replacement for the removal of fish and seafood products.
BoC seen waiting for clearer tariff impact before shifting policy
Standard Chartered economists argue that, “despite the recent tariff escalation, policy makers may want to wait for more data to gauge the impact of the new tariffs on growth and inflation.” In their view, the combination of a Q2 growth rebound and lingering uncertainty around how the latest US measures will filter through to the Canadian economy gives the BoC scope to stay on hold for now, while it assesses whether the shock materially alters the medium-term outlook.
Technical Analysis: USD/CAD retains a bearish bias under the 100-day SMA
In the daily chart, USD/CAD is maintaining a bearish bias as spot holds beneath both the 20-day Bollinger simple moving average (SMA) and the 100-day SMA. The pair is slipping away from the upper half of the recent Bollinger envelope, while the Relative Strength Index (14) around 40 suggests subdued upside momentum and leaves risks skewed toward a deeper corrective phase.
On the topside, initial resistance emerges in the 1.3905–1.3915 area, where the 20-day Bollinger SMA aligns with the 100-day SMA, and a break above this cluster would be needed to ease immediate downside pressure and open the way toward the upper boundary of Bollinger band near 1.4065. On the downside, the first notable support stands at the lower limit of Bollinger band around 1.3740, where a clear violation would reinforce the prevailing bearish tone and expose lower levels on the daily chart.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Canadian Dollar FAQs
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, which is the difference between the value of Canada’s exports versus its imports. 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 its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking 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 gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.