- The USD/CAD records modest losses around 1,3605 in the early Asian session on Tuesday.
- USA and Canada will resume commercial conversations after the elimination of digital tax by Ottawa.
- The Government of Canada hopes to reach an economic agreement with the US for July 21.
The USD/CAD pair operates with slight losses about 1,3605 during the early Asian session on Tuesday. The Canadian dollar (CAD) is strengthened against the US dollar as trade negotiations between the United States and Canada resume. The operators will be attentive to the data of the purchasing managers index (PMI) ISM manufacturing ISM of June, which will be published later on Tuesday. The Canadian stock market will be closed on Tuesday by Canada’s day.
On Monday, the Economic Advisor of the White House, Kevin Hassett, said that the US would immediately begin commercial conversations with Canada after the latter eliminated its digital services tax, which was aimed at US technology companies. Canada suspended his plans to start collecting a new digital services tax aimed at US technology companies only a few hours before this began on Monday, in an attempt to advance in the commercial negotiations stagnant with the USA.
The Canada Ministry of Finance said that Canadian Prime Minister Mark Carney and US President Donald Trump would resume trade negotiations to agree on an agreement for July 21. The positive development around commercial conversations provides some support to the CAD and creates a wind against for the pair.
Meanwhile, crude oil prices were affected while investors weigh the reduction of risk in the Middle East and the prospects for an increase in OPEC+ production in August. This, in turn, could affect the Loonie linked to raw materials and limit the fall of the pair. It is worth noting that Canada is the largest oil exporter to the US, and the lowest prices of crude oil tend to have a negative impact on the value of the CAD.
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.
