- The USD/CAD lowers around 1,3655 in the first Asian session on Friday.
- The Minutes of the FOMC meeting published on Wednesday showed limited support for a rate cut as soon as this month.
- The employment data of Canada in June will be at the center of attention later on Friday.
The USD/CAD pair descends to about 1,3655 during the first Asian session on Friday. The US dollar (USD) weakens against the Canadian dollar (CAD) in the midst of the perspectives of more interest rate cuts by the US Federal Reserve (Fed) this year. The operators will be attentive to the employment data of Canada for June, which will be published later on Friday.
The majority of the participants in the Fed meeting of June 17-18 considered that a reduction in the federal funds rate was appropriate, citing that any pricing clash for tariffs was expected to be “temporary or modest”, according to the FOMC minutes. Fed policy formulators increase their expectations of feat cuts, anticipating two reductions this year and three more in the coming years. However, the “points graph” of the perspectives of the individual members reflected division on the extension of the cuts.
New US commercial tariffs generate doubts about the potential commercial agreement between Canada and the US this month. The president of the USA, Donald Trump, announced on Wednesday a new 50% tariff on US copper imports, which will enter into force on August 1. The Canadian government hopes to reach an agreement with the US for July 21. Any negative development around commercial conversations between the US and Canada could affect CAD and act as a favorable wind for the USD, since Canada is an important copper supplier for the US.
Canadian dollar – frequent questions
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.
