• Tue. Nov 28th, 2023

Canadian Dollar Hits Two-Week Low as Investors Flock to USD After US PMI Beat

Leon Kramer

ByLeon Kramer

Oct 26, 2023

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  • The Canadian Dollar experiences a decline as investors flock to the United States Dollar again.
  • Crude oil prices continue declining, eroding Canadian dollar support.
  • The Bank of Canada will release its most recent rate statement on Wednesday.

The Canadian Dollar (CAD) has recently experienced a decline, reaching its lowest levels in nearly three weeks compared to the US Dollar (USD). This shift in the foreign exchange market can be attributed to a reversal in broad-market flows, with investors flocking back to the US Dollar. The catalyst for this movement was a better-than-expected reading for the US Purchasing Managers’ Index (PMI), which exceeded market forecasts.

The Bank of Canada (BoC) is scheduled to announce its upcoming rate on Wednesday, and market participants will closely monitor the decision. Traders focusing on the Canadian dollar will anticipate that the central bank maintains its reference rate at 5% while also considering the possibility of future rate increases.

Market participants expect minimal adjustments to the Bank of Canada’s forward guidance as Canadian policymakers confront a domestic economy characterized by weakening growth indicators yet persistently high inflation driven by surging energy costs.

Crude oil prices experienced a decline on Tuesday, as West Texas Intermediate (WTI) continued to decrease following Monday’s drop. The Canadian dollar, supported by oil prices, is facing a decline as the value of crude oil falls. This has resulted in the Canadian dollar reaching its lowest level against the US dollar since October 5th.

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The Canadian Dollar Falls as the US Dollar Rises in Value

  • The Canadian dollar (CAD) has experienced a decline, reaching a nearly three-week low, as investors show increased interest in the United States dollar (USD).
  • October PMIs in the United States have surpassed expectations, exceeding forecasts on Wall Street and resulting in positive gains for the productivity indicator.
  • The Manufacturing Purchasing Managers’ Index (PMI) in the United States recorded a steady 50, in line with expectations, compared to the anticipated decline to 49.5 from the previous reading of 49.8.
  • The Services Purchasing Managers’ Index (PMI) in the United States delivered a noteworthy result, registering a reading of 50.9. This surpassed the predicted figure of 49.9, surpassing the previous month’s reading of 50.1.
  • In a recent development, the dual PMI surpasses expectations, significantly boosting the Composite PMI. As a result, the Composite PMI has reached a reading of 51, marking its highest level since July.
  • The decline in Crude Oil prices persists, exerting downward pressure on the Canadian Dollar (CAD) support.
  • The price of WTI barrels has experienced a decline of more than 7.5% since its peak on Friday. 

Canadian Dollar Falls as Investors Choose Us Dollar, USD/CAD Hits 1.3755

In Tuesday’s trading session, the Canadian Dollar (CAD) experienced a decline of approximately 0.7% against the US Dollar (USD). This depreciation can be attributed to the overall bullish sentiment towards the USD in the market, resulting in the USD/CAD pair reaching its highest levels in nearly three weeks.

On Tuesday, the USD/CAD currency pair reached a level of 1.3755, having changed its course from a low point of 1.3661 during the day. In the ongoing USD/CAD market, the upcoming obstacle for bullish traders is anticipated to be the early high of 1.3785 recorded in October. Conversely, sellers currently face a support level at the most recent swing low of around 1.3569.

The US Dollar has experienced a significant increase of approximately 5% compared to the Canadian Loonie since reaching its lowest point in July at around 1.3090. The USD/CAD currency pair benefits from technical support from the 50-day Simple Moving Average (SMA), rising towards the 1.3600 level.

In the latest market analysis, the USD/CAD currency pair is predicted to be poised for an extended rally, potentially leading to a test of the highest levels recorded in 2023 at 1.3862. Conversely, if a complete bearish reversal occurs, the currency pair is expected to find support near the 200-day Simple Moving Average (SMA), currently positioned slightly below 1.3500.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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