- The USD/CAD falls to 1,3925 in the first Asian session on Wednesday.
- The US IPC inflation decreased to 2.3% in April, colder than expected.
- Optimism for trade agreements between the US and China could help limit torque losses.
The USD/CAD torque weakens about 1,3925 during the first Asian session on Wednesday. The US dollar (USD) falls against the Canadian dollar (CAD) after inflation data went below market expectations.
The data published by the US Labor Statistics Office (BLS) on Tuesday showed that the Consumer Price Index (CPI) increased 2.3% at an annual level in April, compared to an increase of 2.4% in March. This reading was below the market expectation of 2.4%. The dollar has weakened in an immediate reaction to the coldest inflation report than expected.
Meanwhile, the underlying IPC, which excludes volatile food and energy prices, rose 2.8% annually in April, compared to the previous reading and 2.8% estimate. In monthly terms, the IPC and the underlying CPI both increased 0.2% in April.
However, the optimism that a tariff agreement between the United States (USA) and China could cool the commercial war between the two largest economies in the world, has led operators to reduce the probabilities of a recession. This, in turn, provides some support to the USD in the short term.
In the front of the CAD, extended profits in crude oil prices could raise the CAD linked to raw materials and limit the rise in the torque. 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 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.
