- The USD/CAD weakens around 1,3955 in the first Asian session on Friday.
- The US economic data support the expectations of feat cuts from the Fed.
- The lowest prices of crude oil could weigh on the CAD and limit the rise in the torque.
The USD/CAD torque loses land to about 1,3955 during the first Asian session on Friday. The US dollar weakens against the Canadian dollar (CAD) as the US economic data feed the speculation that the Federal Reserve (Fed) will resume the cuts of interest rates in the coming months.
Another weak inflation fact suggests that companies are absorbing part of the impact of higher tariffs. The data published by the Office of Labor Statistics on Thursday showed that the US Producer Price Index (IPP) rose 2.4% year -on -year in April, after the 2.7% increase in March. This figure was below the market expectation of 2.5%.
Meanwhile, the annual underlying IPP rose 3.1% in April compared to the previous 4%. In monthly terms, the IPP and the underlying IPP fell 0.5% and 0.4%, respectively. Swaps operators increased their bets on new feat cuts from the Fed this year, which weakens the US dollar (USD) in general.
The initial unemployment subsidy requests in the US for the week that ended on May 10 were 229K, compared to the total revised of the previous week of 229K (reviewed from 228k), according to the US Department of Labor of the US Labor (DOL) on Thursday. This figure coincided with the initial estimates. In addition, continuous applications for unemployment subsidy increased by 9K to reach 1,881m in the week ending on May 3.
A fall in crude oil prices could limit the rise in the Canadian dollar linked to raw materials and create a tail wind for the pair. 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.
