- The US dollar extends its profits in risky risk markets amid increasing rumors about Powell’s resignation of the Fed.
- Anxiety for Trump’s tariffs is also weighing on CAD as the deadline of August 1 is approaching.
- Depressed oil prices pose winds against additional for CAD.
The US dollar is recovering previous losses against the Canadian dollar on Thursday, with aversal risk markets amid the growing speculation that the president of the FED, Jerome Powell, will be forced to resign under the pressure of US President Trump.
Trump said that the possibility of saying goodbye to the FED president is “highly unlikely,” but admitted to having discussed the possibility with Republican responsible before declaring that he would like him to resign.
Shortly after, he mentioned the possibility of dismissing it for fraud charges related to a renewal plan of 2.5 billion dollars for the headquarters of the Central Bank, which left investors wondering about the future of the Fed Chief.
The unprecedented confrontation between an American president and the president of the FED has increased risk aversion, so far supporting the US dollar as a safe refuge.
Beyond that, the US production price index data. UU. They revealed that inflationary pressures at the factories stagnated in May, while annual inflation was moderated to 2.3% from 2.6% in May. These figures calmed the fears of another inflation cycle, triggered by the IPC data on Tuesday.
The Canadian dollar is still disadvantaged after Trump imposed a 35% tariff on Canadian imports, which adds to a 50% tax on steel and aluminum, while negotiations for a better agreement seem stagnant.
Beyond that, oil prices, the main export of Canada, are still depressed near the level of $ 65.00, with a 3.5% drop in the week and more than 15% below the maximums of the end of June, which adds negative pressure on the CAD.
Feeling Risk – Frequently Questions
In the world of financial jargon, the two terms “appetite for risk (Risk-on)” and “risk aversion (risk-off)” refers to the level of risk that investors are willing to support during the reference period. In a “Risk-on” market, investors are optimistic about the future and are more willing to buy risk assets. In a “Risk-Off” market, investors begin to “go to the safe” because they are concerned about the future and, therefore, buy less risky assets that are more certain of providing profitability, even if it is relatively modest.
Normally, during periods of “appetite for risk”, stock markets rise, and most raw materials – except gold – are also revalued, since they benefit from positive growth prospects. The currencies of countries that are large exporters of raw materials are strengthened due to the increase in demand, and cryptocurrencies rise. In a market of “risk aversion”, the bonds go up -especially the main bonds of the state -, the gold shines and the refuge currencies such as the Japanese yen, the Swiss Franco and the US dollar benefit.
The Australian dollar (Aud), the Canadian dollar (CAD), the New Zealand dollar (NZD) and the minor currencies, such as the ruble (Rub) and the South African Rand (Tsar), tend to rise in the markets in which there is “appetite for risk.” This is because the economies of these currencies depend largely on exports of raw materials for their growth, and these tend to rise in price during periods of “appetite for risk.” This is because investors foresee a greater demand for raw materials in the future due to the increase in economic activity.
The main currencies that tend to rise during the periods of “risk aversion” are the US dollar (USD), the Japanese yen (JPY) and the Swiss Franco (CHF). The dollar, because it is the world reserve currency and because in times of crisis investors buy American public debt, which is considered safe because it is unlikely that the world’s largest economy between in suspension of payments. The Yen, for the increase in the demand for Japanese state bonds, since a great proportion is in the hands of national investors who probably do not get rid of them, not even in a crisis. The Swiss Franco, because the strict Swiss bank legislation offers investors greater protection of capital.
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.
