- The USD/CAD records modest profits about 1,3685 in the first Asian session on Thursday.
- Canadian inflation rose to 1.9% in June, reducing the expectations of timets of Boc.
- The inflation of the PPI in the US remained unchanged in June, softer than expected.
The USD/CAD pair operates with slight profits around 1,3685 during the first Asian session on Thursday. The reduction of betting on interest cuts of the Canada Bank (BOC) provides some support to the Canadian dollar (CAD). The operators will be attentive to US retail sales for June, followed by the initial weekly unemployment applications and the manufacturing index of the Fed of Philadelphia that will be published later on Thursday.
Canada inflation, measured by the consumer price index (CPI), rose to 1.9% year -on -year in June from 1.7% in May, according to Statistics Canada data reported on Tuesday. Economists generally expect the new report to unlikely a trim of interest rates of the Boc on July 30. Investors see a 5% possibility that the Canadian Central Bank cut its reference interest rate from the current 2.75% rate at the July meeting, compared to a 14% probability before the Canadian CPI report.
As for the USD, the production price index (IPP), a measure of wholesale costs, remained unexpectedly without changes in June. This figure was below the market consensus of 0.2%. Meanwhile, the underlying IPP increased by 2.6% year -on -year in June compared to the previous 3.0%, softer than the 2.7% expected.
The wholesale inflation report supports the expectations that the US Federal Reserve (FED) will maintain its reference interest rate to one day without changes in the 4.25% -4.50% range at its July policy meeting. Fed officials said they are still cautious about the impact that tariffs will have on inflation and believe that US economy is in the right position now that they can wait to see the impacts before making the next movement. The cautious posture of the Fed could support the dollar against CAD in the short term.
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.
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