EUR/USD extended its daily decline toward 1.0500 in the second half of the American session, pressured by the souring market mood. Despite the bullish action seen earlier in the week, the pair remains on track to register weekly losses.
Following an earlier recovery attempt, GBP/USD turned south and declined below 1.2100 in the second half of the day on Friday. The negative shift seen in risk mood amid rising geopolitical tensions helps the US Dollar outperform its rivals and hurts the pair.
Gold extended its daily rally and climbed above $1,920 for the first time in over two weeks on Friday. Escalating geopolitical tensions ahead of the weekend weigh on T-bond yields and provide a boost to XAU/USD, which remains on track to gain nearly 5% this week.
Nvida's stock price opened marginally lower on Friday after Reuters reported that the Biden administration is attempting to close a loophole that allowed Chinese companies access to state-of-the-art computer chips used for AI.
The USD/CAD tells the trader how many Canadian dollars (the quote currency) are needed to purchase one U.S. dollar (the base currency). This currency pair is known as the "Loonie", a nickname derived from the picture of a loon, a distinctive bird which appears on one side of Canada's gold-coloured, one Dollar coin.
THE IMPORTANCE OF OIL FOR THE LOONIE
The USD/CAD is one of the three so-called “commodity pairs”, together with AUD/USD, NZD/USD, highly correlated to commodity (especially oil) fluctuations.
Canada is commonly known as a resource-based economy being a large producer and supplier of oil. The leading export market for Canada is by far the United States making its currency particularly sensitive to US consumption data and economical health.
FORECAST FOR 2023
The policy divergence between the BoC and the US Fed could continue to drive USD/CAD’s action in 2023. After raising its policy rate by 25 basis points to 4.5% following the January policy meeting, the BoC announced that it is likely to hold the rate at this level while assessing the impact of cumulative rate hikes.
On the other hand, the Fed left the door open for multiple rate hikes in 2023 as it remains concerned about wage inflation causing price pressures to remain uncomfortably high throughout the year.
Both central banks reiterated that they will be prepared to adjust the policy depending on the developments surrounding inflation and labor market conditions. The respective policy outlooks of the BoC and the Fed favor USD/CAD bulls.
ASSETS THAT INFLUENCE USD/CAD THE MOST
Commodities: oil but also gold and natural gas are to be taken into account.
Indices: S&P/TSX Capped Composite Index (the headline index for the Canadian equity market), S&P/TSX Global Gold Index (index of global gold securities) and S&P/TSX Capped Energy Index (benchmarks for related derivative products of Canadian economic sectors).
ORGANIZATIONS, PEOPLE AND ECONOMIC DATA THAT INFLUENCE USD/CAD
In Canada, the organizations and people that affect the most the moves of the USD/CAD pair are:
Bank of Canada (BoC, Canada’s Central bank) that promotes a safe and sound financial system within tyhe country, issuing statements and deciding on the interest rates of the country. Its president is Tiff Macklem.
Canadian Government (headed by Justin Trudeau) and its Department of Finance that implement policies that affect the economy of the country.
CAPP (Canadian Association of Petroleum Producers): Canada being a prominent oil and natural gas producer, the trade organization of that industry is very important.
In the USA, we have:
The US Government (and its President Joe Biden): events as administration statements, new laws and regulations or fiscal policy can increase or decrease the value of the US Dollar and the currencies traded against it, in this case the Canadian Dollar.
Fed, the Federal Reserve of the United States whose president is Jerome Powell. The Fed controls the monetary policy, through active duties such as managing interest rates, setting the reserve requirement, and acting as a lender of last resort to the banking sector during times of bank insolvency or financial crisis.
In terms of economic data, we should highlight the Trade Account Balance, a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the USD/CAD. If a steady demand in exchange for CAD exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the CAD.
Inflation is another economic value that is important for the USD/CAD pair. It is measured among others by the CPI (Consumer Price Index) and the PPI (Production Price Index). They are key indicators to measure inflation and changes in purchasing trends.