- The fears of US tariff cards are promoting the US dollar to a greater demand for safe assets.
- The uncertainty about the size of the taxes and the new deadline of tariffs keeps investors on alert.
- A drop in oil prices after the increase in Opec+ offer added pressure on the CAD in the early hours of Monday.
The US dollar accelerated its recovery against the Canadian dollar on Monday, with renewed concerns about US tariffs feeding a race towards security, as the deadline of July 9 is approaching.
The dollar is quoted 0.5% higher in the day, and 0.8% above last week, since Trump announced letters to “some countries” specifying the tariffs that will be applied to their products.
Higher tariffs, lower oil prices harm Cad
When these tariffs will remain in force, it is still uncertain, since the secretary of the Treasury, Scot Besent, said August 1 as a possible new deadline, which could give some margin to negotiate agreements with countries other than China, the United Kingdom and Vietnam, the only ones who have been able to reach an agreement with the US since April 2.
The Canadian dollar was pressed by opening the market in the lowest prices of oil. The Opec+ countries approved an increase in the supply of crude oil than expected during the weekend and indicated another similar increase in September.
WTI reference prices in the US fell below the level of $ 65.00, dragging the Canadian dollar with them, since oil is the main export of Canada, but the PAR cut some losses as oil prices recovered some land and returned to the previous range, above 66.00 $.
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.
