- The USD/CAD becomes cautious before the inflation data on Tuesday both for the US and for Canada.
- The operators digest the solid Canadian employment report on Friday and the growing tariff threats of the USA.
- The first psychological resistance for the USD/CAD is observed in 1,3700.
The USD/CAD torque is quoted on Monday while the operators digest the US tariff threats against the EU and Mexico and look towards the publication of the inflation data on Tuesday.
At the time of writing, the US dollar is quoted around 1,3690 against the Canadian dollar, with the recent threat of 30% against the imported goods to the US from the European Union and Mexico by promoting the feeling of risk.
The markets remain cautious after the reports of possible tariffs of 35% on Canadian imports and a strong 50% tax on copper shipments to the US, which represents a significant threat to one of the key export sectors of Canada.
Despite the negative holders of trade, the body found some support in the best of the expected Employment Report on Friday, which showed resilience in the Canadian labor market.
These data have temporarily relieved the speculation that the Bank of Canada (BOC) could resume rates cuts at its next policy meeting in July. The attention now focuses on the Report of the Consumer Price Index (CPI) on Tuesday of Canada Statistics, which will offer more clarity on inflation trends and the next movement of the Central Bank.
Simultaneously, USA will publish your own inflation numbers on Tuesday, which is expected to show an annual increase of 3% in the underlying CPI figure in June.
An impression of the hottest US CPC could strengthen the US dollar to rekindle the expectations that the Federal Reserve could maintain the highest interest rates for longer, further complicating the prospects for the USD/CAD torque.
Technically, the USD/CAD is currently going back after being able to stay above the Fibonacci recoil level of 78.6% of the September-February rally in 1,3713.
The torque is testing the simple mobile average (SMA) of 20 days in 1,3670, while the resistance remains firm in the 50 -day SMA about 1,3745. Beyond that, the next upward objectives are in the maximum of June 1,3798 and the psychological level of 1,3800.
The relative force index (RSI) about 51 indicates a neutral impulse, with the price action still trapped in a lateral consolidation range.
USD/CAD DAILY GRAPH
In the lower part, a closure below the 1,3670 mark could open the door to a minimum of June in 1,3539 and possibly as of September 2024 in 1,3419, if the bearish feeling intensifies.
Ultimately, the inflation readings of both countries could be the decisive factor for the next directional rupture. An impression of the strongest Canadian CPC would probably support the CAD and lead to USD/CAD down.
Until then, operators should expect a price action within the range and volatility peaks as inflation data approaches.
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.
