- The USD/CAD records modest profits around 1,3665 in the early Asian session on Wednesday.
- Trump said he will impose a 50% tariff to copper imports.
- Investors prepare for FOMC minutes later on Wednesday.
The USD/CAD pair operates with slight profits about 1,3665 during the early Asian session on Wednesday. The Canadian dollar (CAD) weakens against the dollar after US President Donald Trump revived the concerns after tariffs to Japan and South Korea. The publication of FOMC minutes will be the center of attention later on Wednesday.
Trump said he will announce a 50% tariff to copper imports on Tuesday and suggested that higher sectoral levies are coming. In addition, the US president also said that he would soon announce tariffs “at a very, very high rate, about 200%,” about pharmaceutical imports.
Uncertainty about US tariffs and possible new tariffs on copper imports weigh on CAD, since Canada is an important copper producer. The country has already been beaten with high US tariffs on cars, steel and aluminum, but has escaped the broad rights imposed by the US in April. “There is a little pressure (leaving) of the Loonie, mainly driven by risk aversion, since these tariffs have been in the foreground,” said Rahim Madhavji, president of Knightsbridgefx.com.
However, Canadian Prime Minister Mark Carney and Trump were scheduled to achieve a form of commercial agreement for July 21. Any positive development around the commercial agreement between the US and Canada could help limit the losses of the CAD.
The minutes of the June Federal Reserve meeting could offer some clues on how Federal Reserve officials (FED) see the US economy and the path of interest rates. Any moderate comments of those responsible for the Fed could drag the dollar down against CAD.
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.
