- The USD/CAD is weakened to around 1,3950 in the early Asian session on Tuesday.
- Moody’s reduces the US credit rating to ‘AA1’, weighing on the US dollar.
- A moderate Boc turn has fed speculation about a rate cut in June.
The USD/CAD torque softens about 1,3950 during the early Asian session on Tuesday. The dollar weakens against the Canadian dollar (CAD) after a surprising reduction of the Credit qualification of the US government at the end of Friday and the renewed commercial tensions. Traders will be attentive to the inflation data of the Canadian consumer price index (CPI), which will be published later on Tuesday.
The reduction of Moody’s of the Sovereign Qualification of America to ‘AA1’ from ‘AAA’, along with the growing expectations that the Federal Reserve (Fed) will soon begin to cut rates in the middle of the slowdown in inflation in the US, have eroded the attractiveness of the US dollar (USD). The reduction underlines the growing concerns about fiscal deterioration and tariff -induced distortions under US President Donald Trump.
Fed officials maintain caution and ask for more clarity before committing to changes in politics, which limits the upward potential for the USD. The markets are now valuing in almost 91.6% the chances of rates are maintained at 4.25% –4.50% at the June meeting and 65.1% probability that there are no changes in July, according to the Fedwatch tool of CME.
Meanwhile, a fall in crude oil prices could undermine 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.
However, moderate expectations for the Canada Bank (BOC) after the disappointing employment increases in April and an increase in unemployment could weigh on the CAD and create a decrease in the pair. Economics capital analysts said that USAs are finally weakening the Canadian economy, increasing the probability of Boc rates cuts at an aggressive rhythm.
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.
