- The USD/CAD attracts some vendors as the dovish comments of the governor of the Fed, Waller, weaken the USD.
- The reduction of FED fees cuts expectations helps to limit the fall of the USD and offers support to the currency pair.
- Uncertainties related to commerce compensate for a rebound in oil prices and could limit the advance of the CAD.
The USD/CAD torque falls during Friday’s Asian session and moves away from a maximum of three and a half weeks, around the 1,3775 region touched the previous day. However, cash prices lack bassist conviction and are negotiated just below 1,3700, with a fall of less than 0.10% in the day.
The US dollar (USD) goes back slightly from its highest level since June 23 in reaction to the dovish comments of the Governor of the Federal Reserve (Fed), Christopher Waller, who said that the Central Bank should cut its interest rate objective in July. Apart from this, the optimism in the market turns out to be another factor that acts as a wind against for the secure shelter dollar and exerts some downward pressure on the USD/CAD torque.
Any significant depreciation of the USD, however, seems elusive amid the expectations that the Fed will maintain the highest interest rates for longer due to inflationary concerns. The Canadian dollar (CAD), on the other hand, could have difficulty attracting strong buyers due to persistent uncertainties related to trade. In fact, Trump announced a 35% tariff on Canada imports, which will enter into force on August 1.
Trump added that tariffs would increase even more if Canada took reprisals. In addition, a 50% tariff on US copper imports should limit the progress of the CAD and offer support to the USD/CAD pair. Meanwhile, crude oil prices rise slightly and seek to consolidate the rebound last night, although the rise potential remains limited. This could contribute even more to limit the CAD linked to raw materials and limit the losses of the USD/CAD torque.
The operators now expect the US economic agenda, which includes the publication of preliminary data from Michigan’s consumer’s feeling and inflation expectations, together with housing market data. In addition, the broader risk feeling will drive the USD. To this is added that the dynamics of oil prices should provide some impulse to the USD/CAD torque. However, cash prices are still on their way to register modest profits for the second consecutive week.
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.
Tariffs – Frequently Questions
Although tariffs and taxes generate government income to finance public goods and services, they have several distinctions. Tariffs are paid in advance in the entrance port, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and companies, while tariffs are paid by importers.
There are two schools of thought among economists regarding the use of tariffs. While some argue that tariffs are necessary to protect national industries and address commercial imbalances, others see them as a harmful tool that could potentially increase long -term prices and bring to a harmful commercial war by promoting reciprocal tariffs.
During the election campaign for the presidential elections of November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy. In 2024, Mexico, China and Canada represented 42% of the total US imports in this period, Mexico stood out as the main exporter with 466.6 billion dollars, according to the US Census Office, therefore, Trump wants to focus on these three nations by imposing tariffs. It also plans to use the income generated through tariffs to reduce personal income taxes.
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.
