- The USD/CAD faces challenges as the Canadian dollar linked to raw materials receives support from the highest prices of crude oil.
- The WTI oil price can lose additional ground since OPEC+ agreed to increase production for September.
- The US dollar can weaken as the latest US employment report increases the probability of two rates cuts by the Fed.
The USD/CAD remains subdued during the second consecutive session, quoting around 1,3770 during the Asian hours of Monday. The Par faces challenges as the Canadian dollar (CAD) linked to raw materials receives support from the slight increase in crude oil prices. It is important to note that Canada is the largest oil exporter to the United States (USA). Canadian markets will observe a civic holiday in August.
The price of oil West Texas Intermediate (WTI) bounces after two days of losses, quoting around $ 66.60 per barrel at the time of writing. However, oil prices can decline even more after the organization of oil exporting countries and its allies, the group known as OPEC+, decided to increase production for September. The OPEC+ plans to increase production by 547,000 barrels per day next month, with the aim of recovering market share amid possible supply interruptions linked to Russia.
However, the Canadian dollar could have difficulties since the increase in the fee of the US president, Donald Trump, to 35% from the previous 25% briefly disturbed the markets. However, the exemptions of the USMCA of Canada limit the effective rate on exports to around 5%, softening the general impact on cross -border commercial flows.
However, the USD/CAD also faced challenges as the US dollar fought after a worse employment report than expected in the United States (USA) published on Friday, which led to the reaction of the market to incorporate two cuts of interest rates by the Federal Reserve (Fed). The operators are now incorporating 63 basic points (PBS) of cuts for the end of the year, compared to around 34 PBS on Thursday, with the first cut expected for September.
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.
