- The USD/CAD is weakened to around 1,4290 in the afternoon of the American session on Monday.
- The US retail sales grew less than expected in February, weighing on the US dollar.
- Crude oil prices rise due to geopolitical risks, supporting the CAD linked to raw materials.
The USD/CAD pair remains defensive about 1,4290 during the afternoon of the American session on Monday. The US dollar (USD) weakens as the fears of an economic deceleration for the protectionist commercial policies of US President Donald Trump keeps cautious investors compared to the dollar. The February Consumer Price Index (CPI) inflation report will be at the Center for Care on Tuesday.
The US retail sales grew less than expected in February, which adds concerns about a deceleration in consumer spending. The data published by the US Census Office on Monday showed that retail sales in the United States increased a monthly 0.2% in February compared to -1.2% (reviewed from -0.9%) previously. This figure was weaker than the market expectation of an increase of 0.7%. In interannual terms, retail sales were 3.1%, compared to 3.9%(reviewed from 4.2%) in January.
The discouraging US economic data, together with Trump’s tariff threats, have generated high levels of uncertainty among investors. This, in turn, drags the USD down against the Canadian dollar (CAD). Investors will be attentive to construction permits, housing beginnings and industrial production of the US, which will be published later on Tuesday. If the reports show a stronger result, this could help limit the losses of the USD in the short term.
An increase in crude oil prices in the midst of the growing geopolitical tensions in the Middle East provides some support to the CAD linked to raw materials. It is worth noting that Canada is the largest oil exporter to the United States (USA), and the highest prices of crude oil tend to have a positive 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.
