- The USD/CAD quotes with slight profits around 1,3690 in the Asian session on Monday.
- Trump’s latest tariff threats have brought a new uncertainty to the markets, burning the Canadian dollar.
- The Canadian unemployment rate fell unexpectedly to 6.9%.
The USD/CAD pair records modest advances about 1,3690 during Monday’s Asian negotiation hours. The Canadian dollar (CAD) weakens against the US dollar while the US president Donald Trump intensifies the commercial war with new tariffs on the European Union (EU) and Mexico. The inflation data of the Consumer Price Index (CPI) of Canada in June will be at the Center for Care later on Tuesday.
Trump threatened to impose a 30% tariff on EU and Mexico imports, two of the main US commercial partners, as of August 1. Last week, Trump also announced a tariff rate of 35% for the imported goods of Canada, starting in the same period. The new measures are added to existing 50% tariffs on Steel and Canadian aluminum. This, in turn, could affect the Loonie in the short term, since Canada is the largest supplier of both metals to the US.
On the other hand, the surprisingly strong employment data of Canada in June reduce the probabilities of rate cut of the Bank of Canada (BOC), which could help limit the losses of the CAD. The unemployment rate in Canada fell to 6.9% in June from 7.0% in May, according to Statistics Canada on Friday. This figure was stronger than the 7.1% expected. Meanwhile, the Canadian economy added 83.1k jobs in June compared to 8.8K previously. Economists hoped there would be no changes in employment.
The BOC is expected to maintain its reference interest rate without changes later this month after the labor market registered a surprising increase in hiring in June. Financial markets are now valuing a probability of only 13% of a reduction of a quarter -point rates in the decision of July of Boc, according to LSEG Data & Analytics.
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.
