- The USD/CAD quotes in negative territory about 1,3855 in the early Asian session on Thursday.
- Concerns about an increasing American deficit weigh on the US dollar.
- Advanced reports of the manufacturing PMI and Global S&P services will be observed closely later on Thursday.
The USD/CAD pair extends its fall to around 1,3855 during the early Asian session on Thursday, pressed by a weaker US dollar (USD). Investors expect the advanced reports of the manufacturing PMI and Global S&P services later on Thursday, followed by the National Activity Index of the Chicago Fed, the usual initial applications of unemployment subsidy and the sales of existing housing.
The investment issue ‘Sell America’ continues to undermine the dollar and drag to the torque to a minimum of two weeks. The White House pressed the Republicans on Wednesday, urging legislators to quickly approve the emblematic fiscal bill of President Donald Trump, adding that a failure in doing so would be the “definitive betrayal.”
“The disappointing results of the auction … fit into the narrative of a weakened demand for US assets and a trade of ‘selling America’ amid fiscal concerns,” said Kim Rupert, general director of global fixed income analysis in Action Economics in San Francisco.
On the other hand, a fall in crude oil prices could undermine the CAD linked to raw materials and create a tail wind for the pair. 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.
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.
Market participants will keep an eye on the publication of US PMI reports, which will be published later on Thursday. In case of a stronger result than expected, this could raise the USD against the Canadian dollar (CAD) in the short term.
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.
