- The USD/CAD is maintained by 1,3725 in the early Asian session on Monday.
- Uncertainty about tariffs continues to undermine the Canadian dollar.
- The Boc business perspectives survey will be the culminating point later on Monday.
The USD/CAD pair operates in a flat tone about 1,3725 during the early Asian session on Monday. Uncertainty about tariffs could continue to weigh on the Canadian dollar (CAD) against the US dollar (USD). The operators expect the publication of the Business Perspectives Survey of the Bank of Canada (BOC) to obtain a new impulse, which will be published later on Monday.
The US president Donald Trump threatened a 35% tariff on the imported goods of Canada. The US Secretary of Commerce, Howard Lutnick, dismissed on Friday the question of whether free trade between the US and Canada is dead, qualifying the notion of “ridiculous” and saying that a substantial amount of Canadian goods enters the US without tariffs under the current free trade agreement of North America. The uncertainty about the new tariff rate generates concerns about a renewed commercial war between the US and one of its most important commercial partners, which could undermine CAD.
However, moderate comments of the Federal Reserve (FED) could limit the dollar’s bullish potential. The governor of the Fed, Christopher Waller, said at the end of Thursday that the labor market is well in general, but less in the private sector. Waller believes that the Fed should reduce its interest rate objective at the July meeting, citing growing economic risks. Financial markets are now valuing a start date for feature cuts in September, and Fed officials have planned two reductions later this year, according to Reuters.
In addition, a rebound in crude oil prices could support the Canadian dollar linked to raw materials in the short term. It is worth noting that Canada is the largest oil exporter to the US and the highest prices of crude oil tend to have a positive impact on the value of the CAD.
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.
