- The US dollar falls strongly while the spectrum of a recession in the US returns.
- The weak US data feed the hopes of a Fed feat cut in September.
- A “hard line posture” of the BOC provided a new support for the CAD on Wednesday.
The recovery of the US dollar has been ephemeral. A weak rebound observed in the American market session on Wednesday was limited below 1,3700, and the PAR resumed its widest bassist trend on Thursday to prove the minimums of the year, in 1,3650.
A combination of negative macroeconomic data from the US, the frustration of investors due to the lack of advances in US trade negotiations, the uncertain scenario of tariffs and the growing concerns about US debt continue to feed a trade of “selling America” ​​that has hit the dollar in the last two months.
The weak US data increase the hopes of a Fed relief
The US data published on Wednesday revealed an unexpected contraction of the activity of the services sector, and ADP figures showed that private payrolls grew well below expectations in May. These publications challenge the optimistic forecasts for non -agricultural payrolls on Friday and have revived the fears of an next economic recession.
The president of the USA, Trump, urged the president of the FED, Powell, to lower interest rates immediately after Wednesday’s figures. This is the last of a series of attacks by the Republican leader, who questions the independence of the Fed and feeds speculation about a rate cut. In both cases, bad news for the USD.
The CME Fed Watch tool shows a 57% probability that the federal reserve cuts rates in September, compared to 32% of a month ago.
On Wednesday, the Bank of Canada maintained interest rates at 2.75%, as expected, and warned about the uncertainty of tariffs. However, Governor Macklem highlighted the positive economic developments and limited the hopes of more short -term rate cuts. In short, a “hard line posture” that kept the attempts at the fall of the Canadian dollar limited.
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.
