The Canadian dollar appears to be taking a breather on Friday after a roller-coaster week. On Tuesday, the Canadian dollar sank significantly against the US dollar after the US CPI number—a closely watched barometer of inflation—came in higher than market analysts had expected. This pushed investors into a more cautious, risk-off stance, favoring safe-haven assets such as the US Dollar, to the detriment of more risk-sensitive currencies like the Canadian dollar. The Canadian dollar hit a two-month low at 1.3586 (USD/CAD).
On Wednesday, the Canadian dollar started to drift back higher against the US Dollar, and this strengthening trend accelerated on Thursday following the news that US retail sales in January fell the most in 10 months. More firm oil prices, one of Canada’s biggest exports, have also been supporting the Canadian dollar’s recovery over the week.
The bigger picture here is that any news shedding light on the direction of the Bank of Canada (BoC) or the Federal Reserve will continue to drive the USD/CAD pairing. There has been a lot of discussion that the BoC will need to cut rates sooner than the Fed, down south. If that turns out to be the case, then the Canadian dollar will suffer as investors will seek to take advantage of higher yields elsewhere. If the BoC moves in lockstep with the Fed, then the Canadian dollar will hold its ground or strengthen against the US dollar. A lower interest rate environment globally benefits the export-dependent Canadian economy more.
The Canadian dollar is currently trading at 1.3477 CAD against the US Dollar.
