- The USD/CAD moves up around 1,3835 in the first Asian session on Thursday.
- The Fed is well positioned to expect more clarity about inflation and economy, according to FOMC minutes.
- The highest prices of crude oil could limit the rise in the torque.
The USD/CAD pair advances around 1,3835 during Thursday’s first Asian session, promoted by a stronger US dollar (USD). The second estimate of the Gross Domestic Product growth rate (GDP) of the first quarter will be the center of attention later a day, followed by the initial applications of weekly unemployment subsidy and sales of pending homes.
The minutes of the last policy meeting of the Federal Open Market Committee (FOMC) showed on Wednesday that Federal Reserve (FED) officials agreed that the high economic uncertainty justified their patient approach to interest rates settings. Fed officials highlighted the need to maintain interest rates without changes for some time, since policy changes in the US cloud economic perspectives.
The US optimistic economic data published earlier this week also boosted the dollar. The consumer index of the US Board Conference Board rose to 98.0 in May from 86.0 in April (reviewed from 85.7).
The operators will also be attentive to the data of the Canadian GDP on Friday to obtain a new impulse. The Canadian GDP is expected to grow at an annualized rate of 1.7% in the first quarter. This figure could guide expectations for the Policy Decision of the Bank of Canada (BOC).
Meanwhile, an increase in crude oil prices could support the Loonie 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.
