- USD/CAD remains near its two-month high of 1.3868, reached on Thursday.
- The US dollar receives support due to increased bets on a possible second term of former President Donald Trump.
- The weakening of the commodity-linked CAD is reinforced by the drop in oil prices.
The USD/CAD pair maintains its position on two consecutive days of gains, trading around 1.3850 during the Asian session on Friday. This level is close to its two-month peak of 1.3868, reached on Thursday. The pair’s strength may be linked to the strong performance of the US Dollar (USD), driven by rising expectations that the Federal Reserve will take a less aggressive approach to interest rate cuts than previously thought.
Additionally, the Dollar is bolstered by increased speculation over a possible second term for former President Donald Trump in the upcoming US presidential election in November, particularly due to inflationary policies including higher tariffs and lower taxes.
On Thursday, Republican candidate Donald Trump returned to his well-known reality show line during an event in Las Vegas, Nevada. Trump declared, “Under the Trump administration, we will build an economy that uplifts all Americans, including African Americans, Hispanic Americans, and also members of our great Asian American and Pacific Islander community, many of whom are here today. ,” as reported by Reuters.
Meanwhile, Vice President Kamala Harris was supported by rock legend Bruce Springsteen, artist Tyler Perry and former President Barack Obama at a rally in Georgia, which attracted thousands of supporters in the key state.
The commodity-linked Canadian Dollar (CAD) may continue to weaken amid falling crude oil prices as Canada is the largest oil exporter to the United States (US). So far, the West Texas Intermediate (WTI) oil price is experiencing its third consecutive day of losses, trading around $70.20 per barrel.
Traders are likely to focus on Canadian retail sales data due later in the American session. Additionally, Bank of Canada (BoC) Governor Tiff Macklem is scheduled to speak to journalists both in person and virtually during the IMF meeting.
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.
