- The USD/CAD maintains losses while the US dollar fights before the Fed policy decision.
- It is widely expected that the US Fed maintain interest rates without changes in 4.5% on Wednesday.
- Canadian Prime Minister Carney and Trump agreed to work to finish a new economic and security agreement within 30 days.
The USD/CAD moves down after losing more than 0.5% in the previous session, quoting around 1,3660 during Wednesday’s Asian hours. The torque maintains losses while the US dollar (USD) loses ground before the decision on the interest rates of the US Federal Reserve (Fed) that will occur later in the day.
Operators expect the FED to maintain the interest rate without changes in the June meeting, with a probability close to 80% of a Fed feat cut in both September and October, according to Reuters. In addition, the declaration of the Federal Open Market Committee (FOMC) on monetary policy to obtain future guidance amid the persistent tariff uncertainty and the increase in geopolitical tensions will be observed.
In the data front, US retail sales fell 0.9% in May, worse than the expected fall of 0.7% and the 0.1% decrease in April (reviewed from +0.1%). Meanwhile, industrial production also decreased 0.2%, compared to the 0.1%increase, ranging from the previous growth of 0.1%. Market participants are likely to evaluate the initial applications for unemployment subsidy last week, housing beginnings and construction permits on Wednesday.
However, the USD/CAD pair received support since the US dollar was appreciated due to the increase in the demand for safe refuge amid the growing geopolitical tensions in the Middle East. Israel is likely to climb his attacks against Iran, while the United States (USA) is considering expanding his role in the conflict. On Tuesday, US President Donald Trump declared that he wants a permanent purpose to Iran’s route to nuclear weapons after his early departure from the G-7 meeting in Canada.
Canadian Prime Minister Mark Carney and President Donald Trump met outside a G7 summit in Alberta. Carney surprisingly declared that he and President Trump agreed that his two nations should try to conclude a new economic and security agreement within 30 days. However, a few hours before, Canadian officials said that both countries still had a lot of work to do before signing a commercial agreement.
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.
