- The Canadian dollar extends losses against USD after the US President Trump increased tariffs on Canadian products.
- The US dollar remains strengthened thanks to solid US data and the won hopes for cuts by the Fed.
- Attention today is in the US NFP, which is expected to show a moderate decrease in job creation in July.
The US dollar continues to advance, while the Canadian dollar fights after Trump decided to increase tariffs to Canada to 35% from the previous 25%, climbing the commercial tension with one of its main commercial partners.
The US president justified his decision for the alleged reluctance of Canada to cooperate in reducing fentanyl traffic and other drugs through the US border. However, the impact on the Canadian dollar has been moderate, since most Canadian exports will probably avoid these taxes thanks to the USMCA agreement.
Canada’s GDP contracts but shows positive signs
In the macroeconomic front, the data of the Gross Domestic Product (GDP) of Canada showed that the economy contracted for the second consecutive month in May, in line with market expectations. Even so, manufacturing activity improved significantly, suggesting that the economy could grow again in June.
In the US, the PCE price index figures confirmed that the pressures on prices are increasing, adding reasons to the Federal Reserve to keep interest rates on hold until the real impact of tariffs is clarified. The data provided additional support to the US dollar.
Attention today is in the Julio Non -Agricultural Payroll Report. The market consensus anticipates a slightly lower increase in jobs, 110,000 compared to 147,000 seen in June, with the unemployment rate by increasing 4.2% from 4.1%. The final reading will probably determine the address of the US dollar crosses.
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.
