- The Canadian dollar received a double blow on Tuesday due to the growing inflationary pressure.
- IPC inflation metrics increased both in the US and in Canada in June.
- The probabilities of Fed feat cuts fell after the CPI, strengthening the dollar and pushing the Canadian dollar to family minimums.
The Canadian dollar (CAD) received a blow of one-two on Tuesday after the inflation figures of the consumer price index (CPI) increased at the end of the second quarter on both sides of the parallel 49. The Canadian dollar receded to recent minimums after the publication of the CPI, promoting the USD/CC torque above the 1,3700 zone.
Canada and the United States (USA) saw the price pressures increase in June, reviving market fears that the central bank’s cuts are delayed even more. The frantic rhythm of interest rate cuts of the Bank of Canada (Boc) earlier this year seems to have ended at the moment, and market expectations for a federal reserve rate cut (FED) in September they are evaporating.
Daily summary of market movements: the Canadian dollar receives a blow led by inflation
- The Canadian dollar fell four tenths of one percent from top to bottom against the US dollar on Tuesday.
- The flows to the dollar as a safe refuge have strengthened USD in general, and CAD bulls are slowly losing the control of the price action.
- Annualized Canadian CPI inflation rose to 2.7% year -on -year compared to the previous 2.5%.
- The inflation of the Canadian underlying CPC also accelerated at 1.9% year -on -year compared to 1.7%.
- The US CPI for the year that ended in June rose to 2.7% from 2.4%, pushing hopes for market rates to land.
- Rate operators still maintain hope, but this is fading: according to the CME Fedwatch tool, rates markets only see about 55% probabilities of at least one cut of 25 basic points on September 17.
Prognosis of the price of the Canadian dollar
The Canadian dollar is prepared to enter a new bearish cycle as the Loonie operators run out of purchase margin. The Loonie reached a maximum of about 1,3570 against the dollar, and the USD/CAD seems to be ready for a new bullish thrust towards the upper end. The pair still quotes below the exponential mobile socks (EMAS) of 200 days and 50 days while the US dollar is recovered from the ground, but the technical impulse is prepared to push the USD/CAD up.
USD/CAD DAILY GRAPH
Canadian dollar – frequent questions
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.
