- The USD/CAD advances around 1,3580 in the first Asian session on Tuesday.
- The persistent geopolitical tensions in the Middle East continue to support the US dollar.
- Operators expect the retail sales data of the US of May later on Tuesday to obtain a new impulse.
The USD/CAD pair recovers part of the lost land until around 1,3580 during the first Asian session on Tuesday. The US dollar is strengthened against the Canadian dollar (CAD) while investors monitor the conflict between Israel and Iran in search of signs that it could climb to a broader regional conflict.
Investors have closely observing developments around geopolitical risks after Israel’s attack to Iran on Friday. Ongoing geopolitical tensions will probably support the dollar in the short term. However, there was some optimism on Monday that the situation would not climb after they will supposedly ask several countries, including Saudi Arabia, who urged US President Donald Trump to press Israel for a high immediate fire.
Canadian Prime Minister Mark Carney said Monday that he had agreed with Trump that his two nations should try to close an agreement on tariffs within 30 days.
On the other hand, extended profits in crude oil prices could boost the Loonie linked to raw materials. It is worth noting that Canada is the largest oil exporter to the US, and the highest prices of crude oil tend to have a positive impact on the value of the CAD.
May retail sales data will be at the Care Center later on Tuesday. On Wednesday, the attention will be transferred to the decision of interest rates of the Federal Reserve (FED). Based on the latest US inflation data, the operators now see a possibility of almost 80% of a Fed rates cut in September, followed by another in October, according to Reuters.
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.
