- The USD/CAD can be seen as the US dollar remains strong before the IPC inflation data that will be published on Wednesday.
- The CAD could receive support for the improvement of oil prices amid the relaxation of tariff tensions between the US and China.
- The US CPI is expected to increase 2.5% year -on -year in May, slightly above the previous increase of 2.3%.
The USD/CAD goes back its recent losses, negotiating around 1,3680 during Wednesday’s Asian hours. However, the USD/CAD torque potential could be limited, since the Canadian dollar (CAD), linked to raw materials, could receive support for the improvement of crude oil prices. The highest prices of oil could provide support to the CAD, since Canada is the largest crude oil exporter to the United States (USA).
The price of oil West Texas Intermediate (WTI) remains above $ 64.00 per barrel at the time of writing this article. Crude oil prices are supporting the feeling of positive risk, driven by the decrease in tariff tensions between the US and China.
In addition, the operators welcomed the positive developments of the discussion between the US and China held in London. The reports suggest that Washington is considering relaxing the restrictions on the semiconductors and seeking accelerated rare earth shipments. This increased the hope of a reduction in friction in the supply chain, supporting global commercial feeling and improving the potential demand for the export base rich in raw materials in Canada, offering support to the CAD.
However, the US dollar (USD) also receives support from the relaxation of tariff tensions between the US and China, which compensates for the impact of the highest prices of crude oil, strengthening the USD/CAD pair. The US Secretary of Commerce, Howard Lutnick, suggested on Tuesday that possible resolutions with China and that both countries have reached a framework to implement the Geneva consensus.
Meanwhile, the Vice Minister of Commerce of China, Li Chenggang, said that communication with the United States has been rational and sincere, and that it will inform about a framework to Chinese leaders. However, officials from both parties will seek the approval of their leaders before the implementation, according to Bloomberg.
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.
