- The USD/CAD attracts some buyers in the midst of a combination of factors, although it lacks bullish conviction.
- The fall in crude oil prices weighs on CAD and supports the torque in the middle of a modest rebound of the USD.
- Divergent policy expectations between the Fed and the BOC could act as a wind against for the pair and justify caution.
The USD/CAD pair quotes with a positive bias for the second consecutive day on Monday and goes up to the area of ​​1,3920-1.3925 during the Asian session. The rebound is sponsored by a combination of factors, although the lack of follow -up purchases justifies caution for aggressive upward operators.
Crude oil prices begin the new week with a weaker tone in reaction to the surprise decision of the OPEC+ on Saturday to increase production by 548,000 barrels per day in August. This generates concerns about overestimation and weighs on the black liquid, which, in turn, is considered to use the CAD linked to raw materials. The US dollar (USD), on the other hand, attracts some safe refuge flows after recent Israeli attacks in Yemen in almost a month and turns out to be another factor that acts as a tail wind for the USD/CAD torque.
Any significant appreciation of the USD, however, seems elusive following the concerns that the massive tax cut and the bill of expenses of US President Donald Trump would make the long -term debt problems of America worsen. This, together with the bets that the Federal Reserve (Fed) will resume its cycle of feat cuts in the near future, should maintain a limit on the USD. Apart from this, the decreasing probabilities of more rates cuts by the Bank of Canada (BOC) should benefit the Canadian dollar (CAD) and contribute to limit the USD/CAD pair.
Looking ahead, there are no relevant economic data that can move the market scheduled for publication on Monday, or from the US or from Canada, leaving the counterte prices at the mercy of USD dynamics and crude oil prices. Meanwhile, the market approach will remain focused on the publication of the minutes of the FOMC meeting on Wednesday. Investors will seek new clues about the trajectory of feat cuts of the Fed, which, in turn, will play a key role in influencing the demand of the USD and providing a significant impulse to the USD/CAD torque.
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.
