- The USD/CAD wins impulse up to around 1,3975 in the first bars of the Asian session on Tuesday.
- The relaxation of commercial tensions between the US and China drives the US dollar.
- The highest prices of crude oil could benefit the CAD and limit the rise in the torque.
The USD/CAD pair extends the rally to around 1,3975 during the Asian session on Tuesday, backed by a stronger US dollar (USD). The Canadian dollar (CAD) marked its weakest point since April 10 against the US dollar after a commercial agreement between the US and China that gave an impulse to the American currency.
The relaxation of commercial tensions between the two largest economies in the world provides investors for their clearest indication so far that US President Donald Trump is adopting a softer approach than expected. This generates hope that the US economy can avoid a recession, which, in turn, raises the US dollar in a generalized way.
“It is expected that the continuous fortress in the DXY (index of the US dollar) keeps the CAD under pressure in the next negotiation session,” said Karim Francis, head of currency risk management, North America, in convera Canada Ulc.
Investors now expect the US Federal Reserve (FED) to cut their interest rates only twice in 2025. Swaps linked to FED meetings now favor a reduction of 25 basic points (PBS) in September. Last week, they indicated three cuts this year, with a probable change as soon as in July.
Meanwhile, an increase in crude oil prices could underpin the CAD linked to raw materials and limit torque. It is worth noting that Canada is the largest oil exporter to the US, and the highest prices of crude oil tend to have a positive impact on the value of the 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.
