- The USD/CAD quotes laterally below 1,3700 waiting for US inflation data for May.
- The US CPI data will influence market expectations on the Fed monetary policy perspective.
- The fall in the price of oil weighs on the Canadian dollar.
The USD/CAD quotes in a narrow range below 1,3700 during European negotiation hours on Wednesday. The Loonie PAR is consolidated while investors expect the consumer price index (CPI) of the United States (USA) for May, which will be published at 12:30 GMT.
Economists hope that the general inflation of the US has accelerated to 2.5% from 2.3% in April. The underlying IPC is expected to exclude volatile food and energy prices – has grown at a faster rate of 2.9%, compared to the previous reading of 2.8%.
The expectations of the CPI indicate that the tariff policy imposed by the US president Donald Trump has begun to influence the economy. The scenario of increasing inflationary pressures will encourage federal reserve officials (FED) to commit to maintain their position that the settings in monetary policy are not appropriate unless they examine the possible consequences of the new economic policies imposed by Trump.
Before the US inflation data, the dollar index (DXY), which tracks the value of the dollar against six main currencies, lies flat around 99.00.
Meanwhile, the Canadian dollar (CAD) drops slightly since market experts see the price of oil fall amid concerns about demand. The US Energy Information Administration (EIA) anticipated a fall in the Brent crude, international reference, at $ 61/BBL by the end of 2025, citing concerns about demand and an increase in production.
Since Canada is the main oil exporter to the US, the lowest energy prices weigh on the Loonie.
US dollar FAQS
The US dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a significant number of other countries where it is in circulation along with local tickets. According to data from 2022, it is the most negotiated currency in the world, with more than 88% of all global currency change operations, which is equivalent to an average of 6.6 billion dollars in daily transactions. After World War II, the USD took over the pound sterling as a world reserve currency.
The most important individual factor that influences the value of the US dollar is monetary policy, which is determined by the Federal Reserve (FED). The Fed has two mandates: to achieve price stability (control inflation) and promote full employment. Its main tool to achieve these two objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the 2% objective set by the Fed, it rises the types, which favors the price of the dollar. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the dollar.
In extreme situations, the Federal Reserve can also print more dollars and promulgate quantitative flexibility (QE). The QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is an unconventional policy measure that is used when the credit has been exhausted because banks do not lend each other (for fear of the default of the counterparts). It is the last resort when it is unlikely that a simple decrease in interest rates will achieve the necessary result. It was the weapon chosen by the Fed to combat the contraction of the credit that occurred during the great financial crisis of 2008. It is that the Fed prints more dollars and uses them to buy bonds of the US government, mainly of financial institutions. Which usually leads to a weakening of the US dollar.
The quantitative hardening (QT) is the reverse process for which the Federal Reserve stops buying bonds from financial institutions and does not reinvote the capital of the wallet values ​​that overcome in new purchases. It is usually positive for the US dollar.
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.
