- The USD/CAD quotes in positive territory about 1,3855 in the first Asian session on Friday.
- The US manufacturing PMI rose to 52.3 in May, stronger than expected.
- The lowest prices of crude oil could weigh on the Canadian dollar linked to raw materials.
The USD/CAD pair quotes with slight profits around 1,3855, breaking a four -day running streak during the first Asian session on Friday. The US dollar (USD) advances against the Canadian dollar (CAD) due to the strongest purchasing managers index (PMI) than expected.
The data published by S&P on Thursday showed that the Global compound PMI of the US rose to 52.1 in the preliminary estimate of May from 50.6 in April. Meanwhile, the manufacturing PMI improved 52.3 in May from 50.2 in April, while the services PMI rose to 52.3 from 50.8. The dollar is strengthened against CAD in an immediate reaction to the optimistic data of the PMI.
In addition, the initial applications for unemployment subsidy in the US for the week that ended on May 17 fell to 227K, compared to the previous week of 229K, according to the US Department of Labor (DOL) on Thursday. This figure was below the 230k market consensus. Continuous applications for unemployment subsidy increased 36K to reach 1,903m for the week ending on May 10.
A fall in crude oil prices could weigh on the Canadian dollar linked to raw materials. 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.
Later on Friday, operators will be attentive to Canada’s retail sales data for April, which is expected to show a 0.7%increase. In case of a stronger result than expected, this could boost the Canadian dollar and create a wind against the pair.
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.
