- The USD/CAD quotes in negative territory around 1,3640 in the first Asian session on Friday.
- The president of the United States Trump attacked and threatened the credibility of the Fed, undermining the US dollar.
- The operators prepare for the PCE inflation of the US USA and the data of the GDP of Canada in April, which will be published later on Friday.
The USD/CAD pair quotes with slight losses about 1,3640 during the first Asian session on Friday. The US dollar (USD) weakens against the Canadian dollar (CAD) in the midst of growing market concerns about the independence of the Federal Reserve (Fed). The US Personal Consumption Expenditure Index (PCE) of the US and the data of the Gross Domestic Product (GDP) of Canada will be the points highlighted later on Friday.
According to the Wall Street Journal, the US president Donald Trump is considering replacing the president of the Fed, Jerome Powell, before he finished his mandate in May. Trump has been encouraging Fed president to reduce interest rates more quickly. “Such appointment by Trump of a Fed president in the shadow will probably shake the confidence of investors in the independence of the Central Bank, which contributes to the weakness of the dollar,” said Wasif Latif, Investment Director of Sarmaya Partners in New Jersey.
The president of the Fed, Jerome Powell, said on Wednesday that the Central Bank would be cautious when considering more rate cuts, since it expects Trump’s tariffs to cause a price increase this summer. Fed officials still hope to reduce interest rates this year, but the moment is still uncertain while those responsible for policies expect the next business deadlines and expect more certainty about the scope of tariffs.
Meanwhile, a fall in crude oil prices could drag the Loonie linked to downward raw materials 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.
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