- USD/CAD decreases with concerns about slowing economic growth and the impact of newly imposed tariffs on market morale.
- American Trade Minister Howard Lottenic indicated that Trump may reconsider his identification policy less than 48 hours after its implementation.
- The Canadian dollar faces the opposite winds, amid increasing expectations for additional interest rate discounts from Canada.
The pair of the dollar/CAD continues to decrease in the second consecutive session, hovering about 1.4400 during the early European trading hours on Wednesday. The USD (USD) remains under pressure amid increasing concerns about slowing economic growth and the impact of the newly imposed definitions. President Trump’s tariff entered 25 % on Canadian and Mexican goods on Tuesday, as well as raising Chinese imports to 20 %.
In an interview with Fox News, US Trade Minister Howard Lootnick suggested that Trump may reconsider the tariff policy less than 48 hours after its implementation, indicating possible relief if USMCA rules are followed. However, the New York Times reported that Trump has expressed his intention to maintain definitions in place.
The US dollar index (DXY), which measures greenery against six main currencies, is still about 105.70. The market’s feeling of US dollars weighs with speculation that Trump can reduce his position on the definitions. Investors are now converting their focus into the main US economic data, including ISM Services and ADP employment change managers, which have been released in the North American session.
Meanwhile, the Canadian dollar (CAD) faces negative risks, which limits more losses in the US dollar pair/CAD, as the increasing expectations of additional interest rate discounts from Canada Bank (BOC). According to Reuters, market prices have lost 80 % of BOC rate reduction next week. “We are now expecting the quarter of points to continue during the next four meetings until July, accompanied by the average to 2.0 %,” said Douglas Porter.
Questions and answers in Canadian dollars
The main factors that lead the Canadian dollar (CAD) are the level of interest rates set by the Bank of Canada (BOC), the price of oil, the largest export in Canada, the health of its economy, inflation and commercial balance, which is the difference between the value of exports in Canada in exchange for its imports. Other factors include market morale-if investors are eating more risky assets (risk) or searching for safe materials (risk)-with positive CAD risks. As its largest commercial partner, the health of the American economy is also a major factor that affects the Canadian dollar.
Canada Bank (BOC) has a major impact on the Canadian dollar by determining the level of interest rates that banks can persuade each other. This affects the level of interest rates for everyone. The main goal of BOC is to keep inflation by 1-3 % by setting interest rates up or down. Relatively higher interest rates tend to be positive for CAD. Canada Bank can also use quantitative dilution and tighten it to influence credit conditions, with previous CAD negative and the other positive CAD.
The price of oil is a major factor that affects the value of the Canadian dollar. Petroleum is the largest export in Canada, so the price of oil tends to an immediate effect on the CAD value. In general, if the price of oil rises, the CAD rises, with the increased total demand for the currency. The opposite is the case if the price of oil decreases. The high oil prices also tend to increase the possibility of a positive commercial balance, which also supports CAD.
While inflation was always believed to be a negative factor of the currency because it reduces the value of money, the opposite was already the case in the modern era with the relaxation of capitalist controls across the border. Top inflation tends to lead the central banks to raise interest rates that attract more capital flows from global investors looking for a profitable place to keep their money. This increases the demand for the local currency, which in the case of Canada is the Canadian dollar.
Victory of macroeconomic data evaluates the health of the economy and can have an impact on the Canadian dollar. Indicators such as GDP, manufacturing, PMIS, employment services, and consumer morale surveys can affect CAD direction. The strong economy is useful for the Canadian dollar. Not only attracts more foreign investments, but it may encourage Canada Bank to set interest rates, which leads to a stronger currency. If economic data is weak, CAD is likely to fall.