- The Canadian dollar lost ground against the US dollar on Tuesday.
- Risk aversion has pushed the American dollar upwards on all fronts, forcing the Loonie down.
- The Israel-Iran conflict, in addition to a strong contraction in US retail sales, has triggered a risk aversion movement.
The Canadian dollar (CAD) lost peso against the US dollar (USD) on Tuesday, falling around half percent while risk aversion catches investors and sends them back to the dollar’s safe refuge. The Israel-Iran conflict continues to intensify, hitting the hopes of investors for a rapid resolution, and the US president, Donald Trump, is getting worse by transmitting threats to get directly involved in the dispute.
The significant Canadian economic data remain absent from the programming of data publications this week, and will remain so until the key inflation data of the Canadian consumption price index (CPI) is published by the end of the month. Inflation figures are not expected to provide a lot of support to the Loonie while the markets are preparing for accelerated deceleration in the Canadian economy, keeping the Canadian dollar at the mercy of the flows of the global market.
Daily Market Summary: The Canadian dollar goes back while the dollar comes alive
- The Canadian dollar is going back after the safe refuge flows in the general market back to the US dollar, falling half percent on Tuesday and pushing the USD/CAD again above 1,3600.
- Israel and Iran have extended their reciprocal missile attacks on a fifth consecutive day.
- The president of the United States, Donald Trump, has expressed his willingness to involve US assets and personnel directly in the conflict, triggering a new wave of risk aversion.
- The US retail sales also contracted more than expected in May, reducing the hopes of a rate cut in September.
- The next decision of the Federal Reserve (FED) is scheduled for Wednesday, and the markets expect another pause.
Prognosis of the price of the Canadian dollar
The recoil of risk positioning in the general market on Tuesday has dragged the Loonie downward against the dollar, reinforcing the USD/CAD in the 1,3650 region and breaking a loss streak of several sessions. The pair is still trapped below a key technical resistance located near the level of 1,3700, and the bullish impulse has a limited space to advance before the USD/CAD is with a inclined roof of a line of descending trend drawn from the last maximum oscillating in mid -May.
USD/CAD DAILY GRAPH
Canadian dollar faqs
The key factors that determine the contribution of the Canadian dollar (CAD) are the level of interest rates set by the Bank of Canada (BOC), the price of oil, the main export product of Canada, the health of its economy, inflation and commercial balance, which is the difference between the value of Canadian exports and that of its imports. Other factors are market confidence, that is, if investors bet on riskier assets (Risk-on) or seek safe assets (Risk-Off), being the positive risk-on CAD. As its largest commercial partner, the health of the US economy is also a key factor that influences the Canadian dollar.
The Canada Bank (BOC) exerts a significant influence on the Canadian dollar by setting the level of interest rates that banks can provide with each other. This influences the level of interest rates for everyone. The main objective of the BOC is to maintain inflation between 1% and 3% by adjusting interest rates to the loss. Relatively high interest rates are usually positive for CAD. The Bank of Canada can also use quantitative relaxation and hardening to influence credit conditions, being the first refusal for CAD and the second positive for CAD.
The price of oil is a key factor that influences the value of the Canadian dollar. Oil is the largest export in Canada, so the price of oil tends to have an immediate impact on the value of the CAD. Generally, if the price of oil rises, the CAD also rises, since the aggregate demand of the currency increases. The opposite occurs if the price of oil drops. The highest prices of oil also tend to give rise to a greater probability of a positive commercial balance, which also supports the CAD.
Although traditionally it has always been considered that inflation is a negative factor for a currency, since it reduces the value of money, the opposite has actually happened in modern times, with the relaxation of cross -border capital controls. Higher inflation usually leads to central banks to raise interest rates, which attracts more capital of world investors who are looking for a lucrative place to save their money. This increases the demand for the local currency, which in the case of Canada is the Canadian dollar.
The published macroeconomic data measure 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 confidence surveys can influence the CAD direction. A strong economy is good for the Canadian dollar. Not only attracts more foreign investment, but it can encourage the Bank of Canada to raise interest rates, which translates into a stronger currency. However, if the economic data is weak, the CAD is likely to fall.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
