- The dollar extends profits for the third consecutive day as tensions in the Middle East intensify.
- The positive impact of the highest prices of oil in the CAD remains moderate in the middle of the strong feeling of risk aversion.
- Powell’s hard line comments provided additional support to the US dollar.
The USD/CAD advances for the third consecutive day on Thursday and remains stable above 1,3700 at the time of writing, after having tried the maximums of the beginning of June, near the area of ​​1,3730 earlier today.
The US dollar is one of the best performances of the G8 on Thursday, since investors seek safe assets, in the midst of growing fears that the US attacks Iran, carrying the conflict in the Middle East to a total war with unpredictable consequences.
The fears of a US attack are supporting the USD
The ambiguous comments of the US president, Donald Trump, when he was questioned if there were plans to enter the Israel-Iran war, investors disturbed Wednesday, before a news report suggested that US officials would be preparing for an attack on Iran, which scared the operators even more.
Earlier on Wednesday, Iran’s supreme leader, Ali Khamenei, rejected Trump’s unconditional surrender and warned about “irreparable consequences” if the US was involved in a war against the Islamic Republic.
The feeling of risk aversion has pushed the USD/CAD more than 1% upwards in the last three days and is compensating for the positive impact of the highest prices of oil in the CAD, sensitive to raw materials, for now.
Also on Wednesday, the Federal Reserve maintained interest rates without changes and maintained the hopes of two more cuts of rates this year. President Powell moderated optimism later, warning about inflationary pressures derived from tariffs in the press release, and provided additional support to the US dollar.
at 1,3730
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.
