- The USD/CAD is stabilized before the publication of the PMI of services of the American ISM planned for later in the day.
- The CAD, linked to raw materials, remains under pressure due to the weakening of the WTI price.
- The operators are cautious about the growing concerns about the independence of the Fed.
The USD/CAD maintains its position after two days of losses, quoting around 1,3790 during the Asian hours on Tuesday. The torque moves little while the Canadian dollar (CAD), linked to raw materials, fights in the middle of lower prices of crude oil. Market participants are likely to observe the data managers index (PMI) index of the US ISM later in the US session.
The price of oil West Texas Intermediate (WTI) remains stable after a three -day run streak, around $ 65.60 per barrel at the time of writing. Oil prices could be further depreciated about the growing concerns about a possible excess supply after the organization of oil exporting countries and its allies, known as OPEP+, decided to increase production by 547,000 barrels per day in September.
The USD/CAD pair remains stable while operators adopt caution as the market feeling becomes cautious about the growing concerns about the independence of the US Federal Reserve (Fed). The governor of the Fed, Adriana Kugler, unexpectedly resigned on Monday. This event has provided US President Donald Trump for an opportunity before anticipated to influence the Central Bank. Trump could nominate a potentially more aligned replacement with his calls at lower rates.
However, the bullish potential of the US dollar (USD) could be limited to the increase in the probabilities of an interest rate cut by the US Federal Reserve (Fed) in September, after weaker data of the labor market that have raised concerns about the US economic perspectives according to the CME Fedwatch tool, the markets are valuing in 91.6% Federal Reserve Rate Trim to next month.
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.
