- USD/CAD oscillates between slight gains and small losses amid mixed fundamental signals.
- The modest rally in the USD lends support amid expectations of a further rate cut by the BoC.
- Dovish Fed expectations and a positive risk tone limit gains for the USD and the pair.
The USD/CAD pair starts the new week on a moderate note and oscillates within a tight range, above the psychological level of 1.3500 during the Asian session. The mixed fundamental backdrop, meanwhile, warrants some caution before positioning for a firm near-term direction and an extension of the pair’s good bounce from the 1.3420 area, or the lowest level since March 8 touched last week.
The US Dollar (USD) is attracting some safe haven flows amid the risk of further escalation of geopolitical tensions in the Middle East. The Canadian Dollar (CAD), on the other hand, is affected by expectations of a further rate cut by the Bank of Canada (BoC). This, in turn, acts as a tailwind for the USD/CAD pair, although a combination of factors stops traders from opening new bullish positions and limits the upside.
Global risk sentiment gets an additional boost in reaction to more stimulus announced by China over the weekend. This, along with expectations of more aggressive monetary policy from the Federal Reserve (Fed), is keeping any significant rise in the safe-haven dollar and USD/CAD pair at bay. In fact, markets are pricing in another large rate cut by the Fed at its November meeting more likely.
Meanwhile, the prospect of a widening conflict in the Middle East largely overshadows concerns about slowing demand in China, the world’s largest oil importer, and lends support to crude oil prices. This, in turn, is seen propping up the commodity-linked CAD and helping to cap the USD/CAD pair as traders now await Fed Chair Jerome Powell’s speech for fresh impetus later in the day. the American session.
The Canadian Dollar FAQs
The key factors that determine the price of the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of oil, Canada’s main export product, the health of its economy, inflation and the trade balance, which is the difference between the value of Canadian exports and its imports. Other factors are market confidence, that is, whether investors bet on riskier assets (risk-on) or look for safe assets (risk-off), with the risk-on being positive for the CAD. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian dollar.
The Bank of Canada (BoC) exerts significant influence over the Canadian Dollar by setting the level of interest rates that banks can lend to each other. This influences the level of interest rates for everyone. The BoC’s main objective is to keep inflation between 1% and 3% by adjusting interest rates up or down. Relatively high interest rates are usually positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former being negative for the CAD and the latter being positive for the CAD.
The price of oil is a key factor influencing the value of the Canadian Dollar. Oil is Canada’s largest export, 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, as aggregate demand for the currency increases. The opposite occurs if the price of oil falls. Higher oil prices also tend to lead to a higher probability of a positive trade balance, which also supports the CAD.
Although inflation has traditionally always been considered a negative factor for a currency, as it reduces the value of money, the opposite has actually happened in modern times, with the relaxation of cross-border capital controls. Higher inflation often leads central banks to raise interest rates, attracting more capital inflows from global investors looking for a lucrative place to store their money. This increases the demand for the local currency, which in the case of Canada is the Canadian Dollar.
The published macroeconomic data measures the health of the economy and may have an impact on the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer confidence surveys can influence the direction of the CAD. A strong economy is good for the Canadian dollar. Not only does it attract more foreign investment, but it may encourage the Bank of Canada to raise interest rates, resulting in a stronger currency. However, if 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.
