- The USD/CAD struggles to stay below 1,4300 while Canada’s CPI rose at a robust rate in February.
- The Canadian IPC rose to 2.6% year -on -year, the highest level since June 2024.
- The US dollar bounces while investors are cautious before the Fed policy meeting.
The USD/CAD pair fights to maintain the key support of 1,4270 in the American session on Tuesday. The Lonie PAR faces sales pressure after the publication of the Canadian Consumer Price Index (IPC) for February, which showed that price pressures accelerated at a faster rate than expected.
In the 12 months until February, the Canadian CPI rose at a faster rate of 2.6%, compared to estimates of 2.1%and January 1.9%. The intermensual IPC grew at a robust rate of 1.1%, compared to the expectations of 0.6%and the previous reading of 0.1%. The significant acceleration in inflationary pressures indicates that the aggressive monetary expansion position adopted by the Canada Bank (BOC) in recent months is finally giving results.
The underlying IPC preferred by the BOC – which excludes eight volatile elements – accelerated at a strong rate of 2.7% year -on -year from 2.1% in January. In monthly terms, underlying inflation data increased 0.7%.
A new resurgence in Canadian inflationary pressures could lead to a pause in the aggressive BOC policy relaxation position for some time. The BOC has reduced interest rates from 5% to 2.75% in the last nine months.
Meanwhile, the US dollar (USD) attracts some offers while investors are cautious before the Federal Reserve monetary policy (FED) on Wednesday. The American dollar index (DXY), which tracks the value of the dollar against six main currencies, bounces after discovering purchase interest near the minimum of five months of 103.20.
The Fed is expected to maintain interest rates without changes in the range of 4.25%-4.50%. Therefore, market participants will pay special attention to the FED points graph and the Summary of Economic Projections (SEP), which indicates interest rates, inflation and economic perspectives.
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.
