- The USD/CAD is strengthened around 1,3670 in the first Asian session on Tuesday.
- Trump has officially extended its deadline for tariffs until August 1.
- A firmer US dollar and lower prices of crude oil act like a tail wind for the torque.
The USD/CAD pair advances around 1,3670 during the first Asian session on Tuesday. The US dollar (USD) is strengthened against the Canadian dollar (CAD) after the US president Donald Trump announced new tariffs that will enter into force on August 1 for some commercial partners.
Bloomberg reported Monday that Trump presented the first of a series of promised letters that threaten to impose tariff rates higher to key commercial partners, including 25% taxes on goods in Japan and South Korea, and signed an executive order postponing the new tariffs until August 1.
However, Prime Minister’s office said on Monday that Canada was not the objective of global tariffs and promised to reach a bilateral agreement with the United States for July 21. Although it is not affected by global taxes, Canada is, however, subject to American -related American tariffs. Canada is also affected by Trump’s tariffs on steel, aluminum and cars. This, in turn, could weigh on the Canadian dollar in the short term and create a tail wind for the torque.
Meanwhile, a fall in crude oil prices after the organization of oil exporting countries and allies (OPEC+) agreed to an increase in production greater than expected in August could contribute to the decline of the loonie linked to raw materials. It is worth noting that Canada is the largest oil exporter to the US, and the lowest prices of crude oil tend to have a negative impact on the value of the CAD.
Operators prepare for the publication of FOMC minutes on Wednesday, since it could offer information about how Fed officials see the US economy. Any moderate comments of those responsible for the Fed policy could limit the USD’s bullish potential against the Loonie.
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.
