- The USD/CAD is weakened to around 1,3740 in the first Asian session on Friday.
- Waller of the Fed said that the July cut is justified by the growing risks.
- The US retail sales increased 0.6% intermensual in June, more than expected.
The USD/CAD pair quotes in negative territory around 1,3740 during the first Asian session on Friday. The moderate observation of Federal Reserve officials (FED) weighs on the US dollar (USD). The operators prepare for the preliminary reading of the consumer’s feeling index of the University of Michigan, followed by the construction permits and the beginnings of housing.
The governor of the Fed, Christopher Waller, said Thursday night that he believes that the US Central Bank should reduce its interest rate objective at the July meeting, citing growing economic risks. Waller added that delaying cuts runs the risk of needing more aggressive actions later. The moderate comments of those responsible for the Fed could undermine the US dollar against the Canadian dollar (CAD).
Financial markets are now discounting a start date for rates cuts in September and Fed officials scored two reductions at their June meeting, according to Reuters.
On the other hand, US retail sales could help limit USD losses. The data published by the US Census Office on Thursday showed that US retailers increased an intermencing 0.6% in June compared to -0.9% previous. This figure was below the market consensus of 0.1%. In interannual terms, retail sales rose 3.9% in June, compared to an increase of 3.3% in May.
Meanwhile, a fall in crude oil prices could drag the Canadian dollar linked to downward raw materials in the short term. 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 – 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.
