- USD/CAD remains stable near 1.3645 in the early stages of the Asian session on Wednesday.
- Fed officials emphasized that another gradual rate cut could be appropriate.
- Lower crude oil prices could put some selling pressure on the CAD.
The USD/CAD pair is trading flat around 1.3645 amid US Dollar consolidation during the early stages of the Asian session on Wednesday. The US Federal Reserve (Fed) has emphasized that its approach to monetary policy easing will be guided by incoming economic data. Investors will take further cues from US Consumer Price Index (CPI) data, due out on Thursday.
Fed officials remain cautious and suggest another gradual rate cut could be appropriate. Boston Fed President Susan Collins said Tuesday that the central bank will likely need to cut interest rates further and that the next phase of policy should focus on preserving the U.S. economy.
Meanwhile, Atlanta Fed President Raphael Bostic stated Tuesday that the labor market shows no signs of weakness, adding that despite significant progress in inflation, headline price numbers have yet to reach targets. target levels. New York Fed President John Williams said he strongly supported a 50 basis point (bps) cut at the last meeting and that two additional 25 bps cuts this year would be a “pretty reasonable representation of a base case.” .
Investors will closely monitor the September Federal Open Market Committee (FOMC) meeting later on Wednesday, which could offer some clues about the size of rate cuts at the November meetings. “The markets are all over the place. In the last 15 days, the probability of a 50 basis point cut in November has gone from more than 60% to zero. November is next month,” said El-Erian, the president of the Queens’ College. The prospect of a smaller rate cut could boost the US Dollar (USD) against the Canadian Dollar (CAD).
On the other hand, a drop in crude oil prices could weigh on the commodity-linked CAD. Traders were disappointed when China’s top economic planner ended a highly anticipated briefing on Tuesday without new stimulus measures. It is worth noting that Canada is the largest exporter of oil to the United States (US), and lower crude oil prices tend to have a negative impact on the value of the CAD.
The Canadian Dollar FAQs
The key factors that determine the price of the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of oil, Canada’s main export product, the health of its economy, inflation and the trade balance, which is the difference between the value of Canadian exports and its imports. Other factors are market confidence, that is, whether investors bet on riskier assets (risk-on) or look for safe assets (risk-off), with the risk-on being positive for the CAD. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian dollar.
The Bank of Canada (BoC) exerts significant influence over the Canadian Dollar by setting the level of interest rates that banks can lend to each other. This influences the level of interest rates for everyone. The BoC’s main objective is to keep inflation between 1% and 3% by adjusting interest rates up or down. Relatively high interest rates are usually positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former being negative for the CAD and the latter being positive for the CAD.
The price of oil is a key factor influencing the value of the Canadian Dollar. Oil is Canada’s largest export, 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, as aggregate demand for the currency increases. The opposite occurs if the price of oil falls. Higher oil prices also tend to lead to a higher probability of a positive trade balance, which also supports the CAD.
Although inflation has traditionally always been considered a negative factor for a currency, as it reduces the value of money, the opposite has actually happened in modern times, with the relaxation of cross-border capital controls. Higher inflation often leads central banks to raise interest rates, attracting more capital inflows from global investors looking for a lucrative place to store their money. This increases the demand for the local currency, which in the case of Canada is the Canadian Dollar.
The published macroeconomic data measures the health of the economy and may have an impact on the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer confidence surveys can influence the direction of the CAD. A strong economy is good for the Canadian dollar. Not only does it attract more foreign investment, but it may encourage the Bank of Canada to raise interest rates, resulting in a stronger currency. However, if 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.
