- The US dollar receded in general as FOMC minutes increased the hopes of feat cuts for this year.
- Future markets are valuing a 72% probability of at least one rate cut of 25 basic points in September.
- A moderate but constant recovery in crude oil prices offers additional support to the Canadian dollar.
He Dollar American retreated from two -week maximums above 1,3700 on Wednesday, after the publication of the FOMC minutes and pressured by the fall in US treasure yields. However, the torque maintains its short -term bullish trend intact, with downward attempts in the upper range of 1,3600 for now.
The minutes of the meeting of the Federal Reserve June highlighted a deep decision among the members of the Committee, with most policy formulators showing their willingness to further flexible monetary policy in the coming months, and two of them asking for a rate cut in July.
The moderate group cited inflation expectations anchored in the medium and long term, while evaluating that the inflationary effect of Trump’s tariffs will be temporary or modest. The “aggressive” side supports keeping interest rates at current levels, since the CPI is maintained above the objective and upward risks for inflation remain high.
Investors increase the bets of a Fed feat cut in September
Future markets increased their bets on a short -term rates cut after the publication of the minutes. Betting for a cut in July remained practically unchanged, slightly above 6%, but the chances of at least 25 basic points cuts in September increased to 72% from less than 65% before minutes.
Beyond that, an auction of 39 billion dollars of long -term yields from the US was received with a strong demand on Wednesday, which broke a five -day rally streak in the yields of the US treasure and increased the negative pressure on the US dollar.
As for the Canadian dollar, a moderate upward trend in crude oil prices, which have appreciated almost $ 4 from the minimums of the end of June, has contributed to support the Canadian dollar in the absence of relevant macroeconomic publications this 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.
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.
