- The USD/CAD extends its rise about 1,4440 in the first Asian session on Thursday.
- The Canadian dollar reaches a minimum of three weeks as the hopes of a tariff relief fade
- The US GDP expanded 2.3% in the fourth quarter according to the initial estimate.
The USD/CAD pair extends the rally to around 1,4440 in an American session on Thursday driven by a stronger US dollar (USD). The Canadian dollar (CAD) weakens at a minimum of three weeks, since the US president Donald Trump said that tariffs on Canadian products will enter into force on March 4, clarifying some confusion about the moment and vanishing the hopes of a relief.
Trump said his proposed 25% tariffs on Mexican and Canadian products will take effect next week as scheduled, since drugs continue to enter the US from those countries. On Wednesday, Trump’s comments on the matter seemed to suggest that he could delay the deadline for about a month until April 2.
Meanwhile, crude oil prices fall to a minimum of two months, increasing concerns about the offer as the perspectives of a peace agreement between Russia and Ukraine improve. This, in turn, undermines the Canadian dollar linked to raw materials, since Canada is the largest oil exporter to the United States (USA), and the lowest prices of crude oil tend to have a negative impact on the value of the CAD.
The data published by the US Economic Analysis Office (BEA) on Thursday revealed that the US gross internal product (GDP) expanded at an annual rate of 2.3% in the fourth quarter (Q4). This figure was in line with market expectations.
The publication of the PCE data will be the center of attention together with the personal income/expenses and the PMI of Chicago. In case they are weaker than expected, this could boost the dollar against CAD.
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.
