- The USD/CAD depreciates while the US dollar remains down before the expected publication of the US CPI.
- American inflation is expected to increase at an annual rate of 2.6% in March, slightly below 2.8% in February.
- The CAD could be pressed as oil prices are weakened amid renewed concerns about the demand caused by the escalation of commercial tensions between the US and China.
The USD/CAD loses land for the second consecutive day, quoting around 1,4090 during the European hours of Thursday. The torque loses ground as the US dollar (USD) remains content before the inflation report of the High Impact Consumer Price (IPC) index for March, which will be published on Thursday at 12:30 GMT.
American inflation is expected to increase at an annual rate of 2.6% in March, a slight decrease with respect to 2.8% reported in February. The underlying CPI inflation, which excludes volatile food and energy categories, is expected to decrease to 3% in the same period compared to the growth of 3.1% of the previous month.
The minutes of the Federal Open Market Committee meeting (FOMC) suggest that those responsible for policies are almost unanimously agreed that the US economy faces the double risk of growing inflation and deceleration of growth, warning about “difficult compensation” ahead of the Federal Reserve.
Fed officials continue to subtract importance from the immediate impact of the escalation of commercial tensions, maintaining that policy decisions will continue to be driven by the data. Market participants are now valuing only 40% probability of a feat cut at the Fed meeting next month, according to the CME Fedwatch tool.
However, the decrease for USD/CAD torque could be limited as crude oil prices weaken. The West Texas Intermediate (WTI) is quoted around $ 60.20 per barrel, with under pressure prices due to renewed concerns about the demand derived from the intensification of commercial tensions between the US and China.
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.
