- The USD/CAD depreciates while the Canadian dollar gains ground in the midst of higher prices of crude oil.
- The WTI price rises in the midst of persistent fears of interruptions in the supply derived from tensions between Israel and Iran.
- The 10 -year Canadian bonus yield is quoted around 3.4%, a maximum of five months, due to the probabilities of an aggressive BOC policy perspective.
The USD/CAD continues to lose ground for the fourth consecutive session, quoting around 1,3560 during the European hours on Tuesday. The torque depreciates while the Canadian dollar (CAD), a currency linked to raw materials, receives support from the highest prices of crude oil, given the condition of Canada as the largest oil supplier to the United States (USA), the largest oil consumer.
The price of oil West Texas Intermediate (WTI) recovers its recent losses recorded in the previous session, quoting around $ 71,10 per barrel at the time of writing. Oil prices rise due to the ongoing fears on supply interruptions in the midst of hostilities between Israel and Iran. The operators are monitoring successive missile exchanges between the two security states and the imminent threat of supply interruptions through the Ormuz Strait.
In addition, the 10 -year Canadian government bonus yield is quoted around 3.4%, a maximum of five months. The increase in yields is supported by aggressive expectations for the policy perspective of the Bank of Canada (BOC), since underlying inflation readings have stubbornly remained above the objective of 2% of the BOC. In addition, an unexpected 1.2% increase in Canadian retail sales reinforced the aggressive vision for future policy decisions of the Central Bank. The highest yields attract foreign capital in search of better returns, increasing demand for the Canadian dollar.
The American dollar index (DXY), which measures the value of the US dollar (USD) compared to six main currencies, remains stable around 98.20 at the time of writing. The US retail sales data will be observed on Tuesday. The operators will change their focus on the decision of interest rates of the Federal Reserve (FED), scheduled for Wednesday.
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.
