- The USD/CAD records modest losses about 1,3720 in the early Asian session on Thursday.
- The operators evaluate the high fire between Israel and Iran and the cautious posture of the Fed.
- Powell of the Fed said that the Central Bank needs to manage the risk that inflation by rates will be persistent.
The USD/CAD pair operates with slight losses around 1,3720 during the early Asian session on Thursday. The US dollar remains weak while operators continue to evaluate the high fire in the Middle East and the cautious tone of the president of the Federal Reserve (Fed), Jerome Powell.
The president of the USA, Donald Trump, said that the United States (USA) will hold a meeting with Iran next week, but questioned the need for a diplomatic solution on Iran’s nuclear program, citing the damages that US bombings have caused in key places, according to Bloomberg.
Trump said the conflict was effectively “finished” after the US bombing mission, although he also warned that he could start soon. The operators will keep an eye on developments around the conversations between the US and Iran and the conflicts in the Middle East. However, any climbing signal could boost refuge flows, supporting the US dollar (USD).
The president of the Fed, Jerome Powell, said on Wednesday that Trump’s tariff policies could cause a temporary increase in prices, but the risk that they could cause more persistent inflation is large enough for the Fed to be cautious when considering additional tas cuts. Fed officials still hope to reduce interest rates this year, but the moment remains uncertain while those responsible for politics expect the next business deadlines and expect more certainty about the reach of tariffs.
Meanwhile, a fall in crude oil prices could drag the CAD, linked to raw materials, down and limit the descent of the torque. 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.
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.
