- The USD/CAD remains under selling pressure around 1,3600 in the first Asian session on Friday.
- The US PPI rose 0.1% intermensual in May, softer than expected.
- The increase in oil prices amid geopolitical risks could support CAD linked to raw materials.
The USD/CAD torque slides about 1,3600, its lowest level since October 2024, during Friday’s first Asian session. The general weakness of the US dollar (USD), driven by USA inflation data softer than expected and a reevaluation of the Federal Reserve Policy (Fed), acts as a wind against for the pair. The feeling of the US Michigan consumer will take the attention center later on Friday.
The data published by the Office of Labor Statistics on Thursday showed that the US Production Price Index (IPP) rose an intermennsual 0.1% in May, compared to a 0.2% drop (reviewed from -0.5%). This reading was softer than the expectation of an increase of 0.2%. Excluding food and energy, the underlying IPP also increased an intermencing 0.1% in May compared to -0.2% previous (reviewed from -0.4%), below the consensus of 0.3%.
The US treasure yields and the dollar were reduced after IPP reports, since investors increased the probabilities that the US Central Bank cuts rates later this year. It is anticipated that the Fed maintains its policy rate in the range of 4.25% -4.50% at the June meeting. However, the operators now expect a rate of 25 basic points (PBS) for September, with another likely similar movement in October. Before the IPP data on Thursday, the operators projected that the Fed would wait until December to deliver a second rate cut.
Meanwhile, an increase in crude oil prices in the middle of the climbing of geopolitical tensions in the Middle East could boost the CAD linked to raw materials. US officials and Israel said an Israeli attack to Iran could occur in a matter of days, according to the Wall Street Journal late on Thursday. It is worth noting that Canada is the largest oil exporter to the US, and the highest prices of crude oil tend to have a positive impact on the value of the CAD.
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.
